Hiring and retaining talent remains top priority for private equity

31 January 2023 Consultancy.eu 3 min. read

Despite the cooling of the M&A industry, private equity firms continue to place talent management at the top of their strategic priorities for 2023, right behind asset growth. This is according to the 2023 Global Private Equity Survey by EY.

For its study, EY canvassed the views of more than 100 chief operating officers and chief financial officers from across the private equity landscape, finding that for the large majority of investors, talent management is considered more important than the likes of ESG, portfolio optimisation, cost management, or digital transformation.

“Whether private equity firms grow, consolidate or even down-size, one factor remains constant – the continues to be a people-intensive business,” said Bridget Walsh, EY’s Global Leader of the Private Equity practice.

What are your top strategic priorities aside from asset growth

Across firms of all sizes (EY distinguishes between investors based on assets under management), hiring the right talent and retaining talent rank among the top 3 levers for being and remaining successful.

Notably, EY’s survey found that the biggest impact felt by private equity firms is around attracting and retaining talent at the junior levels, those with less than three years of experience. The researchers note that in the young professionals segment, investors face tough competition from large banks, top tier consulting firms, and the bustling start-up scene.

Nearly half of private equity firms told EY that they have over the past year been impacted by hiring difficulties, and to deal with this talent shortage, they focused on additional outsourcing, improved automation and realignment of their talent strategies, including more allowing for more flexible working and improving compensation.

What does your firm need to do to be competitive in the future?

How compensation increases are adopted tends to vary by level and the tenure of employees, said EY. Over the past period, employees with less tenure have been rewarded with shorter-term compensation increases, such as a higher annual salary, while employees with longer tenures are also granted compensation with a longer time horizon and greater potential upside, such as carried interest.

Meanwhile, around 4 out of 10 respondents said that increasing diversity & inclusion is an important goal in 2023.

What compensation strategies are most widely used

In order to better meet the changing needs of their talent base, private equity firms are placing more efforts into understanding the requirements and expectations. Many firms rely on more traditional and formal measures such as surveys and focus groups, although an increasing number of firms are turning to more informal channels (social gatherings, anonymous feedback, etc) to gather feedback.

Walsh: “People have always been central to the private equity business, and the firms that are capable of recruiting and retaining talent, have consistently achieved a competitive edge. To that end, CFOs and COOs should worked with the C-suite and their HR Director and team to develop successful strategies for their most important asset – human capital.”