Written by Geoffrey Votta
Our Private Equity practice recently had the privilege of participating in the Hunt Scanlon Private Equity Recruiting Conference in New York, joining hundreds of peers and influential operating partners from houses like Apollo, Ares Management, General Atlantic, Insight Partners, Littlejohn, Oak Hill Capital, and others. We explored the key talent strategies to remain competitive in the dynamic world of private equity. Talent management, and specifically recruiting and retaining portfolio company leaders, stands as one of the utmost value creation levers for investment firms.
As the private equity industry is forced to seek new avenues of value creation beyond traditional methods like financial engineering and cash management, operating models have matured. Today, talent management is understood and prioritized to a much greater extent.
Notably, an EY survey revealed that over 80 percent of private equity firms consider hiring and onboarding talent as one of their top three talent management priorities. Additionally, 43 percent of private investors have increased their scrutiny of talent management programs during the due diligence stage. These insights are further reinforced by a McKinsey survey, which found that 94 percent of general partners say that PE portfolio company leaders contribute an average of 53 percent toward investment returns.
While this may not come as a surprise, it underscores the ongoing importance of talent management to the industry. I was personally honored to participate in a panel on the topic alongside an esteemed group of operating partners, where we shared our insights and best practices. The findings from our conversation centered around three pillars: brand optimization, proactive pre-deal assessment, and accelerated executive recruitment.
Brand optimization
Historically, the private equity industry itself has been an enticing draw for executives, affording firms the liberty of picking and choosing among a pool of candidates. As competition has intensified, however, portfolio company executives have become more discerning, taking factors into consideration beyond financial incentives.
Our speakers pointed out that leaders evaluating opportunities with private equity firms are seeking alignment with a firm's purpose, values, and investment philosophy. They are also delving deeper into a firm's reputation and the driving forces behind it. Just as firms conduct backdoor references on candidates, candidates conduct their own research on firms. They seek evidence of a healthy relationship between the investment team and portfolio management team.
Optimizing brand and attracting elite talent is a symbiotic relationship.
Competent candidates have options, making proactive brand building and reputation management key for successful talent acquisition. Furthermore, once fit-for-purpose talent is acquired, there is a big force multiplier effect at play, as these high performers can be leveraged repeatedly across the portfolio.
Pre-deal assessment
Panelists unanimously stressed the imperative of proactively assessing the executive leadership team as part of a comprehensive due diligence process. Early insights serve as the bedrock for value creation. Through effective collaboration, operating partners, talent partners, and executive search partners can identify potential talent gaps and capabilities needed.
This lays the groundwork for building a proactive and strategic candidate pipeline, enabling the team to initiate a search as soon as the deal closes and "a look under the hood" confirms that it is necessary. As those who work in the space know, intelligent yet quick decisions are key to protecting precious execution runway.
Accelerating executive recruitment
In a candidate-driven market, speed is paramount. CEOs, CFOs, and other highly sought-after executives, especially those with successful exit experience, are often presented with numerous opportunities. This poses a risk, as top talent may hesitate to engage in lengthy and cumbersome hiring processes if they are on the verge of accepting an offer from another organization.
Forward-thinking hiring managers adapt by adjusting and truncating their hiring processes, striking the delicate balance between rigor and efficiency. While due diligence should never be compromised, it is wise to fast-track candidates whom you believe in.
Efficient hiring offers several benefits:
- Reducing dropouts: Swift decision-making minimizes the likelihood of in-demand candidates withdrawing from the process, resulting in stronger candidate slates
- Retaining diverse talent: Exceptional diverse leaders tend to be inundated with options, so it is critical to avoid losing them in the pipeline once they are engaged
- Attracting top-tier talent: Efficiency appeals to the best candidates who appreciate a streamlined approach and productive partnership
- Securing a "yes": Top candidates are often quick to commit when presented with attractive opportunities, so it is wise to get their commitment before the competition does
When you accelerate executive recruitment, you improve your ability to attract and secure high-caliber candidates.
In the world of private equity, operating partners and portfolio company leaders share a common understanding: finding and retaining brilliant leaders is their largest challenge and opportunity. In fact, 75 percent of portfolio company leaders consider talent retention to be their biggest challenge while 67 percent of private equity investors emphasized talent recruitment as their primary hurdle (AlixPartners).
As the private equity landscape evolves and the competition for leadership talent intensifies, it is essential to cultivate a positive reputation built on strong portfolio management relationships, take a proactive view on talent pre-deal, and demonstrate agility. Maintaining a competitive edge depends on it.
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