Private equity sponsors are no longer just looking at traditional finance MBA candidates, but expanding their hiring strategies to include people with backgrounds in everything from supply chain optimization, technology, pricing, artificial intelligence to human capital, according to a report from EY and Columbia Business School.
The rapid expansion of the industry is heating up the talent market, yet firms are also more often competing with other industries for top talent as they focus on operational improvements at their portfolio companies.
“They’re seasoned industry executives who can serve as operating partners and talent with data science and artificial intelligence backgrounds from large tech companies as digital transformation accelerates,” the report said.
And as firms pursue more diverse employee bases, they have begun to establish recruitment programs at historically Black colleges and universities, requiring diverse candidates for all roles and establishing new diversity targets.
Employees’ changing priorities
They’re also having to keep up with the changing priorities of the next generation of talent. Candidates are more often asking for better work-life balance and an inclusive workplace, prioritizing those things even above pay. “To be fair – high comp is somewhat of given across the industry, and that’s likely a reason some of these elements rated so highly,” Pete Witte, lead analyst for global private equity at EY, told Private Funds CFO. “But this was consistent with what we heard from the funds as well – that PE is a very demanding field, and comp will only go so far as a motivating factor.”
Firms are responding by exploring different flexible work environments to attract talent. They are also offering mental health and overall health programs for employee wellness.
Beyond the work-life balance, employees want to have good relationships with colleagues, challenging work as well as opportunities for learning and development.
“If you don’t have the right culture, no rapport with colleagues, no challenging work, it becomes ‘I don’t want to get up in the morning. I don’t want to go in the office.’ The challenging work and collaboration is always number one. Comp is secondary,” Helen Thomas, global head of human resources at CVC Capital Partners, said in the report.
Some might assume that it is mostly millennials prioritizing culture and quality of life over compensation, but that’s not so, according to Witte. “One of the things that was surprising was the degree to which millennials and Gen X shared a lot of the same views,” he said.
“ESG is another example – people tend to think of millennials as being very passionate about ESG-related issues, but this was also true of Gen X as well – in fact even a little bit more so.”
Both generations are seeking purpose-driven careers. Employees are asking firms about their ESG programs, philanthropic endeavors and the impact their work has had on society. Private equity firms are taking the opportunity to talk about the positive impacts they have had while building and growing companies they have acquired and controlled.
Responding to these priorities is crucial for retention, Witte said. “The retention piece is critical – firms make heavy investment in their people, and they need to be able to keep them engaged over the long term. And so they’re doing several things to provide them with a rich experience and opportunities to grow throughout their careers,” he said.
Greta Larson of Columbia’s Private Equity Program, who works with MBA students looking for jobs in PE, said in the report that the main reason students are attracted to the industry is because it offers the opportunity to own, build, operate and grow companies, as opposed to simple dealmaking and financial engineering.
Private equity firms are also relying on aggressive recruiting tactics to bring on new talent, including buying out the accrued carried interest at a candidate’s current firm and offering guaranteed cash payments over multiple years.
With a more diverse pool of potential talent, PE firms are ensuring hires make cohesive fits with their culture, and making sure that culture is inclusive. Firms have used personality and IQ tests during the hiring process to vet candidates. And they are increasingly giving junior employees a voice in dealmaking and operational decisions.
And some firms are offering mentoring programs to help employees learn more about, and feel closer to, the business, while also involving HR in performance reviews, compensation and promotion discussions to make the processes fairer across the employee base.