The modern private equity industry, dating to the founding of KKR & Co. (NYSE: KKR) in 1976, has entered its fifth decade. Founder-cousins Henry Kravis and George Roberts have reached their mid-70s and have designated heirs apparent. Across the industry similar stories play out as baby-boomer founders who built firms into multi-billion-dollar fund managers begin handing the reins to a new generation. Signs of this handover abound.
They include the sale of minority interests in firms to cash out founders; spin-outs of investment professionals who lose out in bruising power struggles; and an accelerating shift in emphasis from financial engineering to operational improvement as new leaders, less tethered to the world of investment banking, take charge. Below we examine five hiring trends in private equity that demonstrate how the industry’s maturation is playing out in the trenches:
Meeting demands for diversity
The race is on—if belatedly—to add women and minorities to private-equity payrolls. Senior dealmakers newly in charge at their firms want to right past imbalances. They want to appeal to investors who look with disdain at all-white, all-male investment teams. And many believe that in a field where relationships are all, and where business owners come in all genders and colors, diversification improves the odds of winning lucrative deals in a picked-over market.
“We know that different people from different walks of life make us a better firm,” said Adam Miller, director of global talent management at the Riverside Co., which employees more than 200 people across four continents, including two female co-fund managers and a female chief operating officer. “We’re creating more opportunities for broader demographics.”
Heather Hammond, partner at executive recruitment shop Russell Reynolds Associates, said that in a majority of the searches she conducts for buyout shops these days “there’s definitely a discussion around trying to find and discover diverse talent.”
Private equity’s newfound dedication to diversity comes during a time of rapid growth and brisk hiring. A spring survey of 85 emerging managers by publisher Buyouts Insider found that nearly three-quarters, or 72 percent, plan to add to their payrolls over the next year, primarily at the junior level. The average number of new hires planned by those shops is two: emerging managers naturally tend to be on the small side. Larger, more established firms hire many more than that. Riverside might hire 40 people in a given year, including 10 to 15 investment professionals, said Miller.
It also comes at a time when many young professionals, entering the workforce during a booming economy, have lost interest in careers in investment banking and private equity. They’re repelled by the grueling hours that the industry is known for. They’re dismayed by the need to wear formal business attire, and unwilling to put in the decade or more of work needed to climb the ladder from analyst to partner. And that development has led directly to our next hiring trend.
Becoming more employee friendly
Setting out to hire a diversified team of young professionals is one thing. Actually achieving it poses a complex challenge.
“People are willing to take less money to work in a less intense environment,” said Riverside’s Miller, and “for that reason we see talent drifting to other sectors.” He added: “It’s more challenging than it has ever been to recruit young talent.”
At Chicago-based technology specialist ParkerGale, four of 11 investment professionals are female, “which is pretty damn good percentage-wise if you look at the industry norm,” said Kristina Heinze (pictured, above). Heinze is one of four founding partners at the firm. She is also one of Mergers & Acquisitions' Most Influential Women in Mid-Market M&A. According to data provider Preqin, less than 10 percent of senior investment roles in private-equity shops are occupied by women.
"Diverse resumes” don’t just come flowing into the firm unbidden, Heinze said. With the help of two recruiters based in New York, ParkerGale earlier this year e-mailed invitations to 1,800 post-MBA candidates—1,500 men, 300 women–to apply for an open principal position. Of the roughly 100 that responded, about 90 candidates were male, and only about 10 female. Is it because, as some posit, women don’t apply for jobs until they feel 150 percent qualified and men will apply if they feel at least 50 percent qualified? Heinze doesn’t have the answer.
In the end, ParkerGale hired Kara Master, whom Heinze had met when she was an MBA student at the University of Chicago Booth School of Business and with whom she had kept in touch in the half a dozen years since. “If you want to get diversity, you have to be pro-active,” said Heinze, whose firm this May hosted a dinner and panel discussion for about 50 pre-MBA women working in consulting and investment banking. “Based on our experience, it doesn’t [just] come to you.”
Indeed, just about every private equity firm you talk to these days seems intent on becoming attractive to diverse candidates—whether it’s by hiring a chief diversity officer and loosening its dress code (KKR); giving employees flexible hours to spend more time with children (Riverside); offering up to 12 weeks of paid maternity leave and 16 weeks off altogether (ParkerGale); hosting weekly wine-and-cheese gatherings in the summer (Kinzie Capital); or providing on-site professional development and training (Riverside and ParkerGale).
For those that want outside help, organizations devoted to drawing women, minorities and veterans into corporate finance are everywhere hosting events. They include Elite Meet, Girls Who Invest, Exponent Women, Private Equity Women Investor Network, Toigo Foundation and Women’s Association of Venture and Equity.
Adding portfolio support
With investment multiples ascending ever higher, private equity firms have to improve the operations of their portfolio companies to achieve their 2x and 3x equity multiples.
It’s not a new phenomenon for deal sponsors to have operating partners on staff or on call—typically former CEOs who coach management teams or who parachute in for stints as interim chief executives. That model is as old as the industry.
But these days, buyout firms sustain entire portfolio-support teams. They consist of people specializing in different areas of operations–data analytics, human resources, supply chain management, sales and marketing. Technology buyout giant Silver Lake lists 14 “value creation” professionals on its Web site, including a senior VP of talent management.
Last September, Mergers & Acquisitions reported that New York-based Oak Hill Capital Partners planned to hire a senior advisor for data analytics to improve its understanding of customer dynamics at its portfolio companies. Earlier this year Houston, Texas-based the Sterling Group advertised for a vice president to help improve strategy and operations at the mid-market industrial companies it owns.
According to Russell Reynolds’s Hammond, people joining portfolio support teams may have spent five to 10 years first working at a consulting firm or in operations at a company. Often they start at the VP or director level and have a path to partner. Hammond said her firm over just the last 18 months has worked on 20 to 30 assignments to find staff for portfolio support teams operating around the world.
ParkerGale’s Heinze said that her firm has hired three post-MBA operating principals since its founding in 2014. Two work with portfolio companies on talent management, professional development and training; the third on product and marketing. A fourth may join later this year, Heinze said, although the firm hasn’t decided whether to add someone with expertise in finance and accounting, marketing, or something else.
Expanding into credit strategies
Growth-minded private equity firms have been charging into ancillary strategies such as private credit, and that’s led to hiring at all levels to build out those teams.
Behind the trend, said Solveigh Marcks (pictured, above), founder and managing director of the Denali Group, an executive search firm, lie investors who want not just equity exposure from their favorite sponsors but income-generating strategies as well. Take the $7.6 billion Alameda County Employees’ Retirement System, which recently said it would commit $490 million to seven private-credit funds over the next few years to reach its new 4 percent target allocation to private debt.
Among private equity firms newly positioned to capture some of that inflow is Riverside, which has added four new fund families in just the last four years, according to Miller. These including a fund family earmarked for credit investments, another for non-control situations.
Menlo Park, California-based Silver Lake as of this spring had collected some $2.5 billion for its maiden credit and structured equity fund. The Silver Lake Alpine team extends loans to large-cap technology and other fast-growing companies.
Also this spring Chicago-based Adams Street Partners, best known for its funds of funds and venture capital operations, announced it had closed its first private credit fund at a substantial $1.1 billion. The 10-investment-professional team plans to provide first-lien-loans, uni-tranche facilities, mezzanine debt and other forms of credit to finance the acquisition of mid-sized companies by sponsors.
Embracing special situations
A move by private equity firms into special situations has also fueled hiring. With investors convinced the good economy can’t last forever, they’ve poured money into the coffers of funds managed by professionals with experience buying distressed credits and turning companies around.
Renovo Capital of Dallas, Balmoral Funds of Los Angeles, and Hidden Harbor Capital Partners, Boca Raton, Florida, have recently been in the market raising money for such funds, and they’ve all added to their payrolls this year. One of the newest special-situations firms is 5P Investment Partners, a New York shop founded early last year by ex-executives of WL Ross & Co LLC.
Ten-year-old Renovo Capital, which closed a $225 million third fund earlier this year, has been on a particular hiring tear. At least four of the 10 investment professionals listed on its Web site joined over the last three years, including an associate, senior associate, vice president and managing partner.
For the time being, special-situations firms such as these tend to target companies operating in out-of-favor industries or working through complex situations, such as corporate carve-outs. When the economy eventually turns, these firms will be staffed up–and ready to pounce.