Firms continue to hire at steady pace

Nearly half (44 percent) of private equity firms plan to scout the job market for new hires over the course of the calendar year, according to a fresh survey of private equity executives from professional services firm BDO. 

What firms say they’ll do, and what actually happens, also appears to be in sync. A slim majority (51 percent) of firms said they had gone ahead and increased headcount in 2012, which is not a far cry from the 41 percent of firms who said they would do just that in last year’s survey. 

Likewise in 2011, a similar percentage of GPs (44 percent) said they had increased headcount over the course of the year, which represented a mere 2 percent differential from the 42 percent of firms who said they would do so in late 2010. 

However, when broken down by firm size, larger firms appear to underestimate their hiring needs. Only 30 percent of $1 billion-plus firms believed they would need to increase their employee count in late 2011, yet 65 percent had actually done so last year. 

Lee Duran, a private equity partner at BDO, suggested this was a result of larger shops taking a cautious view of 2012 market activity. “But with the need for deal activity and leverage availability, larger firms began hiring more industry specialists to work the market to drive portfolio deal flow.” 

At any rate, the steady pace in hiring is notable in light of the shrinking management fee pools many firms are experiencing. The conundrum for a number of GPs is how to meet the operational and reporting demands of investors and regulators while working with a smaller budget for payrolls. The findings suggest that the need for human capital is a core component of meeting LPs' and supervisors’ expectations. 

The findings also showed that one in seven (14 percent) private equity fund managers – regardless of fund size – cited tax burdens, including a possible tax increase on carried interest, as the most significant challenge facing private equity firms in 2013. Pricing also ranked among top concerns, with 15 percent of fund managers identifying it as the primary challenge in the year ahead, the study said.