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Weekend Analysis

Private equity talent isn’t going anywhere—for now

While recruiters don’t expect an impending flight from the industry, persistence of fundraising headwinds could cut PE headcount in the future.

Despite fundraising woes, private equity is managing to hold on to its talent—for the time being.

While recruiters don’t expect an impending flight from the industry, persistence of fundraising headwinds could lead to a migration of talent away from underperforming firms.

Faced with a challenging year in dealmaking, fundraising and exits, PE executive search firms have identified a slowdown in hiring in 2023, leaving a large pool of qualified candidates.

The deceleration in hiring is a symptom of the troubling fundraising environment in the private markets. From H1 2022 to H1 2023, private equity and venture capital fundraising fell 16.6% and 47%, respectively—a product of a restricted LP capital supply, elevated interest rates and a pullback in bank lending, according to PitchBook’s Q2 2023 Global Private Market Fundraising Report.

 

Fundraising challenges hit mega-funds hard. In November, PE behemoth The Carlyle Group reportedly lowered its target for a pan-Asia PE fund by at least 30%. Earlier in the year, TPG cut the size of its flagship funds.

The capital shortage has led to a cutback in talent searches and hiring, according to recruiters.

“If you thought you were going to have a $2 billion fund and it’s only going to be $1.3 billion, you probably have too many people to do the number of deals you’re going to be able to do and all the analytical work behind it,” said Alan Johnson, president and founder of Johnson Associates, a compensation consulting firm that works with traditional and alternative asset managers.

This is a stark contrast to the past 10 years of unimpeded growth, which ended when the Federal Reserve began its interest rate hike campaign last year. From 2012 to 2022, Johnson said many firms hired with the expectation that the asset class’s bull run would continue ad infinitum.

Now, Johnson said these firms are overstaffed and beginning to re-assess their headcounts. In fact, BlackRock announced layoffs twice this year, and Carlyle reportedly let go of employees on its US buyout investment team.

Johnson said he expected PE firms to push underperforming employees out across all levels at the end of this year and in 2024.

"[PE] is saying to themselves, ‘Do we need six managing directors? Maybe we need five or four,’” he said.

Too early to flee

Still, the industry pressures won’t lead to a flight from the asset class any time soon, recruiters agreed.

“High-caliber talent isn’t going anywhere; they will stay with the top 50% of performing PE firms,” said John Rubinetti, partner at Heidrick & Struggles in the executive search firm’s PE practice. “Talent who have been managed out or let go may try other routes, but the vast majority are staying within the industry.”

These other routes remain within the private and alternative asset realm with some talent migrating to red-hot asset classes like private credit, liquidity-friendly strategies like special situations and operating roles at PE firms, hiring and compensation consultants said.

“If you’re top talent in this market, people will up-pay for it,” said Francois Auzerais, head of Korn Ferry‘s private markets practice in North America.

Compensation remains steady

What’s more, the effects of this year’s challenges were less dramatic when it came to compensation. Increases in base pay decreased slightly this year compared to last year, according to a survey conducted by Heidrick & Struggles.

Reports show bonuses remained fairly steady in 2023, decreasing only one percentage point from 2022’s numbers.

While it’s too early for talent to flee from the industry, the effects of continued fundraising pressures will come to a head in a few years.

If fundraising challenges persist into 2024 and 2023, Johnson said the industry will segment into the “haves,” firms with ample dry powder and historical fundraising success, and the “have-nots,” the firms that couldn’t raise in 2023 and now have funds smaller than their initial projections.

“If we get several years out and you happen to be at a have-not firm where they’re not able to raise fund five and the carry doesn’t look so good, you’ll look around to do something else,” he said. “But I don’t think we’re there yet.”

Featured image by Drew Sanders/Getty Images

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