Sure, associates tend to be skilled at analytics, financial modeling and general data plowing. But a question all private equity firms must ask themselves is: what types of skills must these associates demonstrate to show they can make it as a principal or vice president (or whichever title it is a firm uses for its pre-partnership positions).
Identifying an associate who can cut it as a principal is not an easy task. The two roles have very different job responsibilities. At the associate level, an individual will spend “the majority of their time with their head in Excel and demonstrating their efficiency in the technical aspects of deal execution,” as one GP puts it. While being a VP is much more than merely knowing the numbers, but about “convincing others you know what you are talking about.”
“What differentiates the associates with the future potential is their investment and business acumen, gravitas and relationship skills,” says Sandra Ozola, head of human resources for Kohlberg Kravis Roberts’ Europe team.
And unlike the associate hiring process, these types of skills can’t be tested for with standard interview techniques and case study assessments. But that’s not to say GPs haven’t developed a few basic strategies when promoting associates. Below are five that GPs tell PE Manager have proven to be the most useful:
1. TALK THE TALK
Associates will find their careers stalled if they can’t clearly and succinctly communicate their ideas, say GP sources.
Excel modeling is a useful skill, but an associate should be able to take that model and clearly deliver its information in a PowerPoint presentation or report summary, says Avi Turetsky, chief of staff for the Riverside Company’s European workforce.
Ozola adds that one way KKR encourages junior employees to show off their presentation skills is by having the firm’s co-founders, Henry Kravis and George Roberts, periodically send out a firm-wide email asking questions like “If you had $200 million how would you invest it?” with an expectation that associates will deliver a number of well-thought-out ideas.
But associates caution one another to first build rapport before increasing their air time. “Don’t show up day one and try to lead an investment committee review or hi-jack a diligence session,” said one former private equity associate sharing advice in an online forum where young Wall St. type discuss industry experiences. “Start small. Ask a few (good) questions in diligence sessions. Chime in with a few interesting points you picked up on customer calls during an investment committee.”
2. WALK THE WALK
Associates that can break out of the habit of being seen and not just heard also stand a better chance of being promoted, say GP sources, who add associates should not idly sit through meetings without respectfully contributing. “You need to have good interpersonal skills and level of maturity to be able to connect with management teams across the table,” says KKR’s Ozola. “That is something we value highly.”
In that aim, associates need to be confident and not bury themselves under analytical work, Ozola added. Associates however may find this to be a challenge. The former private equity associate confessed that his role felt like he was merely “serving others”, a mentality he said can make it difficult for associates to exhibit confidence to their superiors. And it’s a type of mentality that GPs say can hurt an associate’s chances of being promoted.
“We like individuals who can be a sparring partner for the senior guys – someone they can talk to about different deals and companies” says Jan Johan Kühl, managing partner at Danish mid-market firm Polaris Private Equity.
3. RUN SOLO
The move to VP from associate also means that people are no longer telling you what to do as much of the time, meaning an associate wanting to be promoted should demonstrate an ability to work independently, notes Kühl.
And this doesn’t just mean an ability to manage your own schedule and work flow. At many firms, being a VP means having the capability of originating your own deals, says Tim Green, managing partner, GMT Communications Partners..
To test an associate’s ability to originate a deal, many GPs say they like to evaluate their associates’ networking skills. Aside from observing their behavior at a cocktail event, say, senior private equity professionals will observe the number of lunches associates take with bankers and other industry type. Moreover they want to see associates eventually take on greater involvement in portfolio companies, even in some instances developing direct relationships with management teams.
Developing a strong network is not enough of course. Independent thinking is also vital in becoming a good VP, says Turetsky. “At the VP level, we want you to be able to articulate a strong investment thesis; the reasons to invest, what we would do with the company after investment.”
And hand in hand with independent thinking is having the ability to follow through. “It’s good to suggest things we could and should do, but you’ve also got to be able to get them done,” says Kühl, who adds there is an element of truth in this type of assessment.
4. CALL THE SHOTS
Another way that partners scan associates for VP potential is by monitoring their ability to lead teams. It’s an area where sometimes even star associates fail to make the grade, sources say. “When you get to the VP level, you really start to become the project manager for a deal,” says Turetsky, who adds that this means taking the lead on relationships with external advisers, such as banks.
“Some executives are brilliant individual contributors but not necessarily strong leaders. Achieving results through other people is a lot harder but is essential in order to develop next generation of investors,” says Ozola.
GPs say they favor associates who have taken on leadership duties in past projects or have shown that they can be team players by helping more junior associates. And deal partners specifically add that one way for associates to become competent team leaders is by having them develop a niche in a particular area – for instance being the go to person for finance packaging on technology deals.
5. BE LIKEABLE
A last factor GPs mention on the subject seems rather obvious, but is arguably one of the most crucial tests for identifying VPs: if no one likes working with an associate, he or she is very unlikely to get promoted, talent be damned.
A promotion to vice president means having more influence on the firm’s culture and message to stakeholders. “As an industry, we work in small teams, so if you were to make the wrong choice it can very easily upset the apple cart,” says Green.