“Private-equity hiring, particularly for junior professionals, has been surprisingly steady nearly two years into a downturn. Recruiter Anthony Keizner thinks it can hold up in 2024, though firms are shifting how they find and pay employees.

WSJ Pro Private Equity spoke with Keizner, co-founder and managing partner of Odyssey Search Partners, about his forecast for the private-equity talent market next year and how the industry’s recruiting and compensation practices are changing.

WSJ Pro: How do you see the pace of private-equity hiring unfolding next year?

Keizner: Heading into 2024, we expect PE firms to proactively enhance their staff, recognizing the pivotal role of talent in driving returns. Even with the frenzy of interest in artificial intelligence and automation, private-equity returns are still largely driven by people, with the core human capital element not changing for the foreseeable future. Despite the slower deal environment, maintaining preparedness to deploy capital when the economic landscape shifts remains crucial. Most firms’ org charts are pyramid-shaped and hiring will continue to be strong at the junior level. Particularly within the framework of a typical two-year associate program, there arises a need to fill vacant positions resulting from promotions or departures within the firm.

With the market for top investment banking analysts remaining highly competitive in recent years, we anticipate firms to diversify sources for junior talent to include hiring straight from undergrad, [private-equity] lateral hires, and MBA associates. We also anticipate an increased need for hiring professionals who source new deals as originators, operators who improve value, and capital markets professionals to facilitate deal financing.

WSJ Pro: What unexpected forces could alter private-equity hiring plans, prompting firms to either dial them up or cut back?

Keizner: Given the long-term nature of private-equity investments and stable, locked-up capital, it’s uncommon for PE firms to drastically alter their long-established hiring plans. The fundraising environment influences these plans and a slower fundraising pace may result in reduced hiring needs. Economic factors can also impact hiring plans especially if interest rates continue to increase or remain steady.

Legislative changes may also have implications for hiring. In particular, changes in the enforceability of noncompete agreements would have implications for hiring if these restrictive covenants, which block staff from working for rivals and limit the pool of new hires, become unenforceable.

We anticipate a heightened emphasis on off-cycle associate hiring which allows firms to hire associates months before their anticipated start date, as opposed to two years before. This affords firms greater flexibility to effectively respond to evolving market dynamics and provides more certainty in a world where both fundraising and deal activity are experiencing considerable volatility.

WSJ Pro: The private-equity industry is in the midst of bonus season, which looks to be solid this year. How long does the current slowdown need to last before it starts hitting PE professionals’ pay?

Keizner : Private-equity firms, backed by long-term committed capital, typically fund cash compensation through management fees. It is unlikely to see cash compensation decrease, but the rate of growth may decelerate. It would take an extended slowdown in private-equity activity over multiple years before impacting investment professionals’ pay, particularly in terms of cash compensation.

In the long term, there seems to be a trend of linking remuneration more prominently to carried interest, with cash compensation comprising a smaller percentage of total compensation. This shift would aim to further align employee compensation with positive fund performance, reinforcing the connection between individual success and the overall success of the fund, and returns for investors.