Private Equity and the Big Talent Squeeze: A victim of its own success?

July 08, 2019 Share this article:

This Industry Viewpoint was first published in 2019 Hunt Scanlon State of the Industry Report

Sonal Agrawal (Accord India), Simon Bailey (The Inzito Partnership), Stephen Dallamore (Search Partners International), Thomas Heyn (Jack Russell Consulting), Mark Mulvanerty (Diversified Search) and Anna Schauman (Novare Group) Discuss How the Private Equity Sector is Fighting for Leadership

Last year, the global private equity sector reported a record $3 trillion in assets under management and outperformed traditional investments by significant margins. Deloitte’s 2019 ‘Investment Management Outlook’ puts the amount of global PE dry powder (undeployed capital) at a record $1 trillion, signaling another stellar year for this alternative investment class. But experts are sounding the alarm. In a market awash with capital from investors seeking refuge from low interest rates, lackluster hedge funds and volatile equities, past growth is not necessarily a guarantee of future success. There are new players on the block, such as sovereign wealth funds and large pension funds, who are increasingly in direct competition for acquisitions with traditional PE companies. Adding to the uncertainty, borders between PE, investment banks and asset managers have become more and more blurred. When it comes to finding the right people to navigate these crowded waters, corporates are fighting back in a bid to protect their best and brightest from the allure of the PE payday. The race for quality deals it seems is matched only by the race for top talent.

So where to from here? What are the implications for the industry? And how can PE raise the bar when it comes to finding the right leadership to continue adding value to their customers? These are the questions we put to our global partners who have spent two decades working closely with PE clients in mature markets such as the U.S., the U.K., Germany and Sweden, and in developing economies such as India and South Africa.

Old Battles, New Tactics

“A war for private equity talent has been raging for years but it is fair to say that attracting and retaining top leadership in portfolio companies is brutally competitive at the moment,” says Mark Mulvanerty, who heads the PE practice for Diversified Search / AltoPartners USA, ranked by Forbes as one of America’s top five executive search firms in 2018. “Private equity firms have done an excellent job of attracting talent with the end-game promise of wealth creation tied to value generation. However, public companies have begun to counter these measures in both the acquisition and retention of superstar talent. This has vastly contributed to the tightening of the talent pool.”

It’s a sentiment echoed by London-based Simon Bailey, Partner and Head of the Financial Officers Practice at The Inzito Partnership / AltoPartners UK, the UK’s leading boutique executive search firm: “One of the biggest challenges we have is to persuade our PE clients to broaden their search parameters. I typically handle CFO appointments, and our clients nearly always start by asking for an experienced CFO from another PE backed business in an analogous field, which means we are often asked to work to an incredibly tight candidate specification, which is akin to being asked to look for a seven-legged sheep in this market. We try to advise clients to consider exceptional candidates from more diverse backgrounds. Over the years, there was some resistance to candidates from corporate backgrounds despite them often being exceptionally well qualified. There is still a view out there that corporate people are less likely to make the transition successfully.”

The CFO is a crucial hire for portfolio companies given that they are not only the custodians of the strategy and exit plan but also responsible for managing both performance and control as well as IT or other functions. A person who has successfully done all of this before and is willing to do it again, can pretty much name their price.

“PE clients are often keen to manage cost and are reticent to pay richer cash packages in addition to offering skin in the game. Highly experienced, skilled people in their forties and fifties have financial obligations that they usually can’t put on ice for five years until an exit strategy is executed. PE clients now realize they have to pay marketrelated packages to compete with banks and blue-chip corporates,” said Mr. Bailey.

This narrow approach to talent is reminiscent of the dotcom era when the preferred C-level candidate profile called for a CEO or CFO who had helped lead a successful Initial Public Offering. “We have seen a shortfall of talent at the C-level across industries in private equity-backed settings. The best advice we can give is to partner with executive search professionals who really know the portfolio industry and who have access to an array of top talent at their fingertips. This enables us to move quickly and relatively inexpensively, especially when it comes to outstanding candidates who may not have successful private equity transaction experience but hit on the other primary talent requisites for the role and are best positioned to optimize value,” added Mulvanerty.

Show Me the Values

In Sweden, where a mature PE industry punches above its weight relative to its population and attracts a sizable amount of international capital, competition is equally fierce but with an added focus on sustainability, both from prospective C-suite executives, and investors with Environmental, Social and Governance (ESG) mandates.

Anna Schauman, AltoPartners Global Operating Committee Member and a partner in the Novare Group / AltoPartners Sweden who heads up the banking and finance portfolios, is concerned by the lack of IT competencies, both at strategic and operational level, especially around programming, analytics, digitalization and data mining, management and storage.

Globally, the shortage in IT skills is driven both by a need to understand the highly-specialized niche markets of portfolio companies that play in the technology space, as well as at PE level where there is a need to address the digital gap in their own companies. One such example is the growing trend to offer customized offerings for individual investors in other asset classes such as hedge funds, real estate and private credit, which are not generally part of the traditional PE basket. This in itself creates new tech issues around the integration of human knowledge with AI, machine learning (ML) and Natural Language Processing (NLP) to inform investment decisions, as well as implementing systems for reporting and billing to support new investment products. This is a challenge for an industry still heavily reliant on the Excel spreadsheet.

And if you’re lucky enough to attract top IT and systems talent, your remuneration needs to match your value proposition.

“Candidates want to believe in what they’re doing. Swedish companies have a long tradition of being good corporate citizens and a company’s value proposition adds an entirely different dimension to the recruitment process,” she said. “We work closely with our clients to ensure that they have all their internal processes in place to allow us to move quickly once we identify a suitable candidate. One of our biggest value-adds is to help the client agree on the profile and to do this, we like to meet as many of the decision makers as early as possible in the search. This affords us a deep understanding of their requirements and also to identify any internal dynamics that might derail the process at a later stage. We also coach our clients about what to expect from the market and what they need to do to make their offering as attractive as possible, because in the current market PE clients can no longer rely purely on the promise of future wealth,” she noted.

Bargain Bonanza In South Africa

In South Africa where both private and listed assets are trading cheaply relative to their underlying value, Stephen Dallamore, AltoPartners Global Chairman and Managing Director of Search Partners International (SPi) / AltoPartners SA, said the talent crunch is less at the portfolio company level, and rather in the PE funds themselves.

“In PE the exit strategy is everything. You need to be able to see the exit strategy even before you make the offer and this requires a very particular set of skills, particularly around how to break down key business drivers, how to model the financials and economics of a company, and how to discern where the biggest sources of value creation might be in a potential portfolio company, as well as the ability to manage due diligence and many different stakeholders under tremendous pressure and deadlines. Unlike their counterparts in corporate finance, PE executives have to live with their mistakes so the pressure to get it right is enormous,” he noted.

“The right leadership is a game changer. Its impact on financial performance, and market valuation has been well documented and when your entire business model depends on how well you execute the exit strategy, then leadership is one thing you can’t afford to get wrong. This is where having an executive search partner who understands your business model is critical. At portfolio level, the key is to find a search partner that understands your sector and who can successfully navigate the relationship between the PE investors and the employees in the acquired company,” he added.

The Rise of the Super-Entrepreneur

Sonal Agrawal, AltoPartners Global Operating Committee Member, AESC Main Board Member and Managing Partner of the Accord Group India / AltoPartners India, has seen the rise of PE activity first hand, with a quarter of Accord’s revenues in India now flowing from PE or PE portfolio work. Regarded as one of the leading executive search consultants in India (and named one of the world’s 150 Most Influential Headhunters by Business Today), she runs the PE practice for Accord, bringing in sector or functional partners, as required.

The rapid growth of the PE industry in India over the last 10 years has given rise to exponential demand for senior advisors who bring in deep industry knowledge and connectivity in niche markets such as healthcare and financial services. Board members who can provide strategic and governance oversight, as well as market access and connectivity, are also hot property right now.

Deal sizes are getting bigger, driven by a surge in controloriented transactions, mainly by the founders of businesses, or first-generation families, who don’t have succession plans in place, as well as from corporates who find themselves having to divest of non-core assets in a bid to reduce debt and deliver decent returns on equity. These non-core assets find a natural home in PE.

This has given rise to a new breed of super-entrepreneurs who thanks to PE, now have the wherewithal to run their own company in the absence of undeveloped capital markets. This is driving economic growth in India and Sonal’s role is often to source these go-getters who are able to move the needle in terms of strategy and growth. “PE is no longer leaving the recruitment for portfolios to the old boy network, and is increasingly using retained search for better hiring outcomes. Leadership roles can be a deciding factor in attracting other talent to the enterprise so we put a premium on influencer skills,” she noted.

But its seldom plain sailing in India’s emerging PE market and regulatory obstacles and sudden changes to government policies are common. One project involved keeping 28 distinct searches in a holding pattern for months, while a regulatory battle raged around the project, only to see the deal fall through.

Ms. Agrawal also said that a key component of her recent briefs is to be able to represent and position lesser known funds and portfolios based on their potential rather than their existing operations. “We recently assisted a well-known domestic PE firm with a project to overhaul its portfolios. We were put on an annual retainer and ran multiple searches, with a Managing Partner functioning almost as an extension of the firm. “In that case it’s as important for us to be comfortable with the PE owners and to understand their business model and their objectives for the business – we need to believe the story, before we can sell it,” she said.

Respectability at Last? PE in the German Mittelstand

Understanding the business model is what excites Dr. Thomas Heyn, AltoPartners Global Operating Committee Member and Managing Partner at Jack Russell Consulting / AltoPartners Germany, in Munich, whose intimate knowledge of the IT industry gives him an edge when it comes to adding value to PE clients in this space. “The client is looking for an expert who has done this before. In PE there is no room for training and learning on the job – if you want that, go to the corporate world. PE clients are buying experience – people who’ve proved they can do it, and who have enough gumption and guts to put skin in the game and do it again”, he said, referring to a recent search for a global PE fund in search of a CEO to head up a newly acquired software company in Germany.

Despite being very different markets, Germany’s PE experience has parallels with India when it comes to presenting solutions for founder-businesses facing a succession problem. “Very often the owner is looking to retire and wants a safe pair of hands to grow the business,” he noted, referring to the pool of family-owned, small and midsize engineering and manufacturing companies with revenues ranging from €5 million to several hundred million euros that form the backbone of Germany’s economy, employing more than 15 million people and contributing more than a third of the country’s economic output. PE provides not only funding, but perhaps more importantly, fresh momentum, access to new markets, new ideas and new resources in the form of research and development, that these small companies wouldn’t have on their own. So, while PE in Germany has come a long way since the early 2000s when then-vice chancellor Franz Müntefering branded them a “swarms of locusts” who “suck the substance” out of companies in pursuit of short-term gains, PE companies will never be motivated by altruism.

“For all the positive growth this brings, it’s not Pretty Woman,” cautioned Dr. Heyn. “The main objective is to make money. Plain and simple. So yes, if caring about the values and the culture of an acquisition will achieve that, then they will certainly focus on that. But it’s not out of some altruistic ambition to make the world a better place – if PE companies can achieve the multiples without having to wear a soft glove, I have no doubt they would. It’s purely pragmatic.”


In an increasingly crowded and competitive PE space, finding and retaining talented leaders is as big a priority as growing the business. Given the new kids on the PE block, it’s not just PE firms looking for nimble, numerate, big-picture influencers who have succeeded in their niche industry and can transition into a new company and shape the culture in a way that will motivate and inspire people to take the business to the next level. Such talent is rare and can afford to be picky about the company they keep. Added to this is the need to close the IT gap – both internally in terms of cutting-edge systems to support investment decisions and build better client relationships; and externally to effectively use the data that digitalization provides while also dealing with threats to cyber security. As markets mature therefore, so do the need for PE firms to view talent acquisition as a continuous process, broadening their search horizons and adapting recruitment strategies to suit the business cycle and the environment, and to pay attention to trends outside of their industry.

Building a relationship with an executive search partner who understands your business model, who knows where the boutique talent resides and who can call upon a global network of partners with deep sectoral, geographical and technological areas of expertise, can make all the difference.