Some of the skills required to be a star private equity performer can be developed through training, claims Avi Turetsky, COO of Riverside’s Europe fund, in his latest academic research paper.
Turetsky studied the star dealmakers at one firm to see whether the 80/20 rule – whereby 20 percent of people in the world account for 80 percent of the value or wealth – also exists within private equity firms.
Within a typical organization, the top 10 percent of workers create 30 percent of value, and the top quartile creates 50 percent, according to earlier research. Turetsky found this holds broadly true in private equity – between 2004 and 2014, the top 20 percent of investments made by the firm accounted for 70 percent of capital gains.
“There are a lot of theories about why stars emerge in the way that they do, but they are really tough to test in practice. However, in private equity it is easier to measure the value of a partner because you can typically attribute an investment made to an individual partner who leads that investment,” Turetsky told pfm.
His research also identified the competencies that differentiate star investment professionals, and built on previous research from other academics that found that some skills can be learnt.
Turetsky said everyone has their own strengths, and those lacking a couple of key competencies can develop them through training.
“Star performers have the ability to identify a strong company for investment and what it takes to achieve growth within that company,” said Turetsky.
Top performers tend to have organizational awareness skills, enabling them to more easily understand the dynamics of a portfolio company and the structure of management team within that organization.
They also have a more positive outlook, which enables them to see the opportunities in an investment, rather than focusing purely on risk mitigation, and higher achievement orientation skills, meaning that they are able to approach situations with high energy and are constantly looking for better ways to do things.
These competencies also reinforce each other in what Turetsky calls “multiplicative reinforcement.”