As private equity firms look to build out their infrastructure, talent management is a top area of focus for CFOs in building and maintaining competitive businesses.
According to EY’s annual Global Private Equity Survey, 65 percent of mid-level firms said talent management is their firm’s top priority. More than half (56 percent) of firms with more than $15 billion in AUM and 46 percent of firms managing $2.5 billion or less, also cited talent management as a top priority.
“Hiring, engaging and retaining top talent are going to be paramount to future success,” noted EY partner Kyle Burrell.
Among the largest firms surveyed, 76 percent said retaining talent was critical, while 60 percent of smaller firms emphasized hiring the right talent.
There was a refocus on talent management strategies, with diversity and inclusion still very high in the top priorities for managers. Finding ways to hire top talent also came in as a strategic priority for these firms, Burrell added.
Nearly half of firms (49 percent) with $2.5 billion to $15 billion in AUM and more than half of firms (56 percent) managing more than $15 billion in assets cited increasing diversity as a top talent management priority.
Burrell noted that with record-setting fundraising in 2021 increasing assets under management for many firms, paired with the “great resignation” and a change in generational hiring, firms had to refocus on their talent management strategies and figure out the best way to hire the right talent, engage that talent and have the infrastructure in place to execute on the firm’s strategy.
Firms are looking at potential candidates with different backgrounds when hiring for various back-office functions.
“Sometimes that doesn’t mean just hiring people with accounting backgrounds. We have seen people coming from banking backgrounds or insurance backgrounds, or where they might have had a financial planning and analysis background being brought into these organizations to help round out their infrastructure to help support more strategic decision making,” Burrell explained.
Where firms can’t hire for certain roles, they are outsourcing more, particularly smaller firms. Of firms surveyed with less than $2.5 billion in assets, 23 percent said they are outsourcing more often, while 59 percent of the largest firms are more often outsourcing in order to handle the growth that they’re experiencing. Only 11 percent of firms managing between $2.5 billion and $15 billion in assets said they rely on outsourcing more often.
Improving compensation continues to be a major point of leverage for all firms to both attract and retain new and existing employees. Compensation strategies vary based on tenure of the employee. Employees with less tenure often receive shorter-term compensation increases, such as a higher annual salary, while employees with longer tenures are often additionally rewarded with compensation with a longer time horizon and carried interest.