Service provider labor crunch slows PE deal closures

Private equity service providers are feeling pressure from the Great Resignation, a phenomenon that has led to staffing issues which are complicating fund managers’ efforts to wrap up deals, according to a newly released survey from BDO.

In the report, 39 percent of respondents said “lack of bandwidth” among vendors hindered deal closings, a jump by 11 percentage points from when the question was previously asked last fall.

Fund managers also cited insufficient in-house bandwidth or resources, with an increase of 2.5 percentage points over the same period. The survey of 200 US fund managers was conducted in March by Rabin Research Company.

The industry’s situation has been spurred by several specific causes that come on top of a challenging overall labor market, BDO private equity head Matt Segal said in an interview. These factors are impacting service providers and private equity firms alike, he noted.

Aside from compensation, Segal said that younger would-be candidates prioritize environmental, social and governance investing principles. He cited interest in the social side of ESG and a desire to work for a company “that is more conscious.”

Diversity, equity and inclusion has come up as a specific example of this, Segal said, noting that firms should have resources and staff on hand to respond.

Firms are taking various approaches to fill their talent gaps. For fund managers, the survey found that 55 percent are boosting their dependence on technology and automation, while 61 percent are turning to contractors.

Meanwhile, 54 percent said they will raise compensation and benefits. BDO said that funds with less than $1 billion of assets under management were more likely to plan compensation increases, adding that this suggests they are trying to compete with their bigger peers.

For service providers, Segal said the situation is pushing them “to be more focused and strategic in the relationships that are part of their longer-term plan.” He noted that they also benefit from private equity firms having to hire contractors for services instead of relying on in-house labor.