The Reality of the Private Equity Hiring Environment

I recently saw an article published online entitled “Private Equity Firms Hiring Again”.  I was excited to see this heading, but unfortunately, for private equity professionals this is not yet accurate.  Upon delving into the article, the author discusses how private equity firms have started hiring “C-Level” executives for their portfolio companies.  Although, I concur with this statement and agree it is overall good news, it is not necessarily optimistic for professionals within the private equity firms themselves.   These are one of the groups of professionals works with on a daily basis. The truth for our private equity community members is that hiring has started to slowly pick up for professionals within the private equity space, but is still tepid at best.  The only reason I believe this very reserved increase is at all positive news for our professionals is because we were in a nuclear winter for hiring in the alternative space as a whole just a short time ago.

The Reality Now

Realistically, hiring will not begin to truly strengthen until private equity and other alternative investment firms are able to raise new assets and find new sources of funding.  Although the environment is improving for accomplishing these two actions, it is still not ideal and will likely take some time for the perfect atmosphere to evolve.

Historically private equity firms have hired the majority of their talent when raising a new fund.  Smaller firms would traditionally only hire outside of that in a need based situation, as in the case of someone leaving the firm.  On the other hand, larger firms were willing to hire additional talent to build and maintain a “stable” of bright professionals and then pick the best of the herd to move on to the partnership track. 

The idea of building a “stable” of professionals is gone and will probably never have the same attractiveness it held in the past.  Furthermore, with many firms suffering from poor performance, firms will not have the ability to negotiate better terms with their investors or LPs and therefore will have to make do with smaller, predictable revenue streams.  Not to mention the additional costs that legislation from Washington could bring to these firms’ bottom lines.

The Future Reality  

Once the environment corrects itself, the flood gates will open in regards to hiring.  Besides coming out of complete devastation for the alternative space and a very slow asset raising period, many firms have had to cut head count, conserve their predictable fees and overuse the human resources they do have.  The cost cutting and unforeseeable future has created the largest passive applicant pool I have seen in over 14 years of working in the space.   The pool consists of presently employed professionals from Associates to Partners including some partners who will trigger “key man” clauses within their funds.  When the time does come, these professionals will be ready to move onto new opportunities due to the atmosphere created in their current firms and the industry itself over the past 18 months.

Other than the most junior ranks (those coming from the investment banking analyst program), this large passive pool will make the private equity space an extremely tough industry for non-experienced professionals to break into for the next 3-4 years.  On the other hand, the passive applicant pool and the business model changes which have occurred in the private equity space over the last 2-3 years should make this an excellent time for all experienced private equity investors to excel and become valuable members of their firms in a short period of time. 

This is especially true for strong mid-level professionals.  These individuals will become even more valued - especially those that prove to be good deal sourcers. Private Equity firms are only as good as their employees and the relationships they have.  Therefore the competition for strong mid-level professionals will be tough.

A Trickle Becomes a Geyser

In conclusion, Private Equity firms are not yet back in the market of hiring professionals for their firms but I do believe the trickle of activity I presently see will continue to strengthen.  When we see assets move off the sidelines and new sources of funding arise, this trickle will become a steady flow with the potential of becoming a geyser due to the desires of presently experienced professionals wanting to move firms and get back into the industry.  As asset raising improves so will the future and career goals of private equity professionals.

© 2008 NyamiNyami Holdings, LLC