Finding the right balance on talent

As the talent shortage within private markets continues, private equity firms face the reality of paying higher salaries across the board, from junior staff through to C-suite executives. 

According to executive search firm Eastward Partners, compensation for a wide array of private equity professionals has increased from 50 percent to 200 percent. The report also found that 65 percent of private equity professionals reported an increase in their base renumeration during the year. This begs the question: what is the future of private funds talent management in this higher rate environment?

The issue of attracting and retaining talent is becoming something of an arms race, with firms prioritizing it as a matter of urgency. According to EY’s annual Global Private Equity Survey 2023, a majority of large and mid-sized firms are placing greater emphasis on retaining talent for fear of losing them to the competition, while at smaller firms, hiring the right talent takes precedence. 

“The last two years have been quite challenging,” says Jason Howard, chief financial officer at Headway Capital, a London-based secondaries firm. “The banks have been putting up remunerations to try to retain staff and that’s been our normal hunting ground for the next generation. This has had a knock-on effect and we’ve had to calibrate our remuneration packages.” 

“We’ve always taken the view that deal team members, and back-office staff, should have access to long-term incentive plans such as the carry scheme.”

One hot market

One of the potential advantages CFOs have at mid-market firms is the ability for deal partners to develop broader skills than might otherwise be possible at a bigger firm “where people tend to be a bit more pigeonholed,” says Howard. He notes that finding the right blend of interesting work without a punishing schedule is a priority for this generation of talent.

Aparna Ramaswamy, chief human capital officer at VC manager Techstar, says that recruits are also being increasingly discerning on culture. 

“Finding great talent that is aligned with our culture and values continues to be a challenge – I don’t see this changing,” she says. 

“We have consistently seen that compensation is important but not the top reason why talent choose to join or stay at Techstar. It is certainly an important dimension of a total rewards approach – which, in our case, includes benefits like unlimited paid time off and perks like wellness days.”

A higher sense of purpose

With the war for talent heating up, firms with a thriving workforce and innovative culture share one thing: a focus on being more relatable. At Summa Equity, for example, they are trying to create an open, caring and freethinking company culture, complemented by a competitive compensation package. 

“Beyond culture and compensation, everyone at Summa receives guided responsibility – a well-crafted mix of freedom with senior support and advice – that delivers core fundamentals for professional and personal growth,” says Christian Melby, partner and chief investment officer at Summa Equity.

This approach is helping Summa Equity to build for the future and incorporate greater diversity across the firm. 

“We find that we attract people that are seeking a higher sense of purpose from their work,” says Melby, adding that an increased focus on diversity, equity and inclusion will create advantages for firms doing well on this already and inspire other firms to do better. “Part of talent management is to educate and develop the next generation of leaders, who can drive forward these important topics in future.” 

Stacy Nyenbrink is chief people officer at Chicago-headquartered firm Harrison Street. She explains: “At Harrison Street, we look for individuals who are performance-driven, innovative and passionate. We also value collaboration, since firms that are dedicated to fostering a culture of innovation and teamwork are the ones that attract and retain top talent.”

Arguably, the focus on diversity has been greater among European managers, especially those located in the Nordics like Summa Equity. There is now a growing realization among CFOs in such firms that they try to attract and retain talent based on the complete package offered. 

According to Melby, it’s not just the salary offered, or benefits, “but the opportunity to be a part of an organization doing such vital work.” 

Growth mindset

With the uncertain macro picture placing greater demands on how CFOs support portfolio companies, there is a growing emphasis on becoming more strategic and being aware that new talent can bring a wider set of skills to the table to drive positive change. 

Ramaswamy suggests the differentiator will continue to be less about skills and functional or domain knowledge and more about the personal and leadership qualities that talent exhibit to be successful today.

“Having a growth mindset that includes the ability to ‘unlearn’ and ‘relearn’, thriving in times of uncertainty and ambiguity, looking around corners to anticipate what’s next, and confident humility will differentiate the great from the good or average,” she says.

Nyenbrink holds the view that as the CFO role evolves over the next decade it will continue to be important to hire individuals “across the finance function who are well aligned with executives across other teams such as transactions, asset management, legal, IR, impact, business technology, research and marketing.” 

At Headway Capital, Howard says that being strategic has become more critical. He notes the importance of the CFO remaining close to the strategic decision-making and looking for areas where others aren’t operating “to add value and be reactive to the needs of the business.” 

The focus for CFOs, he says, is “very much now about getting our data into a more usable place and analyzing it more effectively.”

“From a finance perspective, there will always be the need for qualified accountants, but I think what you will have is more data analytics people who can source and manage data,” Howard adds.

As the competition to attract talent increase, managers who can strike the right balance between attractive remuneration and fostering a culture of collaboration should be well positioned to pick up recruits, but retaining those professionals will require CFOs to remain flexible and forward-thinking.