What's Next for Private Equity Talent Management?

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.