In the evolving Private Equity arena, a quintessence of proficient leadership is imperative to navigate the complexities and render substantial value.
The journey from meticulous deal-making to managing assets proficiently has put an unprecedented emphasis on acquiring and retaining the right talent. However, the reality is at odds with the requisite, shedding light on a pertinent concern in the industry.
The Leadership Quandary and Private Equity Talent
A recent disclosure from a survey conducted by PitchBook resonates with a concerning reality: “Nearly half of PE firms and their portfolio companies question whether they have the right leadership in place.” This revelation isn’t just a momentary concern but a reflection of a deeper issue plaguing the PE sphere. The BDO’s latest survey amplifies this concern further, where nearly half of the private equity fund managers and operating partners reported being understaffed across their organizations.
The Talent Deficit Spectrum
Diving deeper, the data reveals that 48% of fund managers in private equity firms and operating partners find their organizations understaffed. The scenario is grimmer for critical roles, with 49% of PE fund managers pointing out a stark shortage of indispensable personnel, including positions like Chief Financial Officers, Controllers, and Treasurers. This staffing concern echoes through the portfolio companies, with 47% of CFOs acknowledging the dearth of staff in critical roles and 43% identifying understaffing as a pervasive issue in their organizations.
The study, encompassing the insights of 405 private equity fund managers and operating partners alongside 200 Chief Financial Officers at PE-backed companies, unfolds a narrative that’s hard to overlook. It reflects a consequential shift at a time when talent has morphed into a key driver for PE firms transitioning from traditional deal-making models to a more holistic approach focusing on maximizing profits from existing assets.
Transition Amidst Talent Scarcity
The transition isn’t smooth, especially when the industry is aggressively vying for C-suite executives from public domains and broadening their horizons to embrace a more diverse talent pool, aiming to retain a younger, dynamic workforce. Around 20% of PE fund managers identified talent management as the most frequently deployed value creation lever, according to the BDO report.
Jim Clayton, PE advisory national leader and PE national co-leader at BDO, encapsulates the sentiment aptly, “Talent is a big issue.” The root of this staffing deficit can be traced back to the implementation of return-to-work policies amidst the post-Covid era. The hybrid work environment, although necessary, has brought forth challenges in talent acquisition and retention, especially those adept at navigating market downturns. Moreover, the shelf life of PE backed CEOs is two years for more than 50% of companies. Talent churn coupled with talent scarcity is a disaster in the making in the coming years.
Navigating Through The Challenges
An intriguing facet of the survey unveils that 60% of private equity CFOs commenced their roles less than a decade ago, most of whom didn’t experience the market adversities of 2007. The lack of experience through tumultuous market phases is a concerning gap. The narrative extends to portfolio companies under larger funds with more pronounced staffing challenges. A significant 60% of portfolio company CFOs, under funds exceeding $15 billion in assets, reported being understaffed in critical roles. This sentiment gradually dilutes as we move towards companies backed by smaller funds.
The dissonance between the perceptions of private equity owners regarding staffing levels and the portfolio companies’ perspective on their staffing needs, as pointed out in the report, might be leading to a larger discourse. The surmise that larger funds believe their portfolio companies may have over-hired during 2021 and 2022, akin to many tech behemoths aiming to hoard talent and scale, is now seen as a facet requiring correction.
Concluding Reflections
The findings from the survey emphasize a crucial aspect – the urgent necessity for aligning the leadership and talent strategy with the evolving dynamics of the private equity sector. As the industry veers towards a more asset management-centric model, the importance of having the right leadership and talent in place becomes unequivocally significant. This scenario calls for a nuanced approach to talent management; one attuned to the changing contours of the private equity landscape.
