Headcount (Editor's Letter)

Among the many kinds of stories that PEI Media has covered over the years, layoffs at private equity firms has been among the rarest.

Certainly there is always turnover within private equity firms – co-founders split and found rival firms; junior partners spin out with the hope of creating their own franchises; captive arms go independent.

But Detroit-style layoffs … this phenomenon takes private equity to its next level of maturity, that being a collection of businesses with finite budgets, with operating costs and with the need to forecast future revenue that doesn't necessarily always go up. It's not a happy stage of maturity to reach, but it is one that must be dealt with realistically.

PEI Manager took the opportunity in our annual compensation survey of CFOs and COOs (see a special 10-page report on this starting on p. 18.) to learn more about the current round of layoffs occurring across private equity. We asked more than 100 firm managers whether there were plans to reduce headcount at their firms, or indeed whether this reduction was already under way. About one fourth of respondents said yes. Two executive search professionals commenting on the results said they found the results surprisingly optimistic. They expected about half of private equity firms to begin reducing headcount in the near future.

Back to the point about maturity. Of those firms that are planning to reduce staff, only a fourth were planning cuts to the back office. This dovetails with anecdotal evidence, gathered by the PEI edit team, that most of the staff reductions at private equity firms are from the deal teams, where in some cases highly paid professionals are sitting idle amid a slump in new deals and exits. Some firms, especially venture capital firms, are considering reducing the partner roster.

In the meantime, private equity firms that intend to remain in business for the long term have no plans to weaken the infrastructure they need to be effective and efficient. This means that the finance team and the investor relations team in particular remain vital to ongoing operations, and while not immune from layoffs, these non-deal professionals have established permanent roles at their firm.

Enjoy the issue,

David SnowDavid.s@peimedia.com