In
private equity,
staying ahead requires more than having keen market insight—you need a
comprehensive understanding of the talent landscape and the ability to adapt to
a constantly shifting environment.
In
this article, I explore what I think are the upcoming PE trends for the last
few months of 2023 and into 2024. I also share insights from Hanover's recent
PE salary survey, along with actionable strategies for attracting and retaining
the best of the industry's talent.
What's the outlook for PE in 2024?
As
we hurtle towards 2024, the private equity landscape is characterized by a more
cautious environment. The buzzing activity we once saw has slowed down
noticeably in 2023. I believe that there are several contributing factors.
First,
the high interest rates - money is not cheap any more. This year saw the highest interest rates in over 20 years. This uptick is affecting
how private equity firms evaluate potential investments, which in turn makes
deals pricier and, consequently, the margin for error slimmer.
Along
with high interest rates, there are lingering economic uncertainties. Many
investors are approaching the market with a heightened sense of apprehension,
and this uncertain terrain has also made fundraising more challenging than it
has been in previous years - PE
fundraising during the first half of 2023 was nearly 25% slower than the
same period the previous year. Lastly, acquiring companies is no longer
business as usual, as increased costs due to inflation and rising interest
rates have added new layers of complexity to deal making.
One of the fallouts of this combined set of
challenges is that PE firms are having to focus more energy on the operations
of their portfolio companies rather than being able to derive value from solely
from transactions. A close focus on operations clearly takes time, resources,
and financial resources, and it requires finding the right talent to support
portfolio companies in need of a more drastic turnaround. (If you’re struggling
to find the right talent in a context like this, Hanover’s executive search/private
equity experts can help.) Additionally, it’s been increasingly difficult to sell current portfoliocompanies, thus
delaying the returns on current investment funds.
On
a brighter note, there has been a positive trajectory in terms of salary
increments and bonuses. However, this growth isn't as strong as it has been
over the last few years. As the compensation curve starts to flatten,
especially at senior level, PE firms must rethink their strategies to attract
and hold onto high-performing talent.
Hanover private equity salary survey: the results
Our
2023 survey of senior leaders in PE firms paints a picture of the evolving
compensation trends within the sector. These are the key highlights:
- While 2022 saw an increase in base salaries across
the board, 2023 was a different ball game. MD/Partner level salaries
plateaued. At the mid-level, roles such as VP, Principal, and Director
experienced more substantial growth, overtaking Associates in terms of
percentage increments.
- Bonus increments weren’t as generous as
the previous year, indicating a more conservative compensation approach by
firms.
- We’ve observed a significant jump in PE talent
looking for new roles—more than 40% in 2023 compared to 25% in 2022. This
spike could point to a rising restlessness or perhaps a search for better
opportunities within the sector.
I
think there are several reasons behind these figures. For candidates, that
might be a desire to find roles with clearer pathways to promotion or a better
work-life balance, or perhaps it’s people wanting to move to more innovative
firms who adopt new and agile strategies that better meet the demands of the
current economic climate.
Additionally,
the current economic climate is to blame for constraining the usual robust
growth in base salaries and bonuses seen in previous years. Inflationary
pressures and a more cautious investment landscape have simply dampened PE
firms’ ability to offer generous compensation increments.
How PE firms can attract and retain talent
According to the BDO’s first half of 2023 Private
Equity survey, 94% of respondents said hiring remains a challenge.
In a market as uncertain as private equity currently is, firms must be
strategic and proactive in their approach to hiring and retaining top talent.
These are my top strategies:
How private equity firms can attract the best
talent
- Offer a transparent path to progression by
showcasing opportunities beyond the current role.
- Move beyond the standard packages and explore
creative compensation structures, including long-term incentive plans—including
carry on deals—or unique bonus structures.
- Emphasize a company culture that values both productivity
and personal wellbeing. Highlight any unique work-life balance initiatives.
- Outsource your hiring
requirements to an executive search firm that knows private equity and the best talent in the market.
How to retain existing talent
- Encourage, provide,
and support ongoing professional development. This not only hones
employees’ skills, but also underscores
your investment in their growth.
- Establish a system in which excellence is regularly
recognized and rewarded, THEREBY ensuring that top performers feel valued.
- Cultivate an environment in which feedback flows
both ways. Address concerns promptly and involve talent in decision-making
processes.
How Hanover can help
For
a more thorough insight into Hanover's private equity salary survey and to gain
tailored hiring advice for your PE firm, please feel free to contact me directly to set up time for a call.
With years of experience in executive search in the private equity sector, I
can source high-performing PE talent to ensure your firm stays ahead in this
competitive landscape.
