Private equity firms’ on-cycle recruitment is becoming more competitive and kicks off earlier every year – for many investment banking analysts, the process begins as soon as they start on the training program. There are always the typical candidates with two years of investment banking experience moving into private equity and the post-MBA hires who P.E. firms recruit before their last year. But what else can we expect to see in terms of hiring trends in the P.E. space in the U.S. this year?
Some P.E. firms have moved into direct lending
Private equity firms have been moving into the parts of the direct lending space that banks have vacated, primarily in the $1m-$25m broad range, with the sweet spot being $3m-$7m – very few commercial loans are over $15m given the size of the risk in the case of default.
“More private equity funds are entering direct commercial lending as non-bank financial institutions, as it is a very attractive bolt-on to a larger multi-strategy fund,” said Jordan Shapiro, managing director of the financial services division at the Bachrach Group, a recruitment firm. “Such loans are a good way to draw in additional assets from existing clients, and that will drive the need for people with core credit skills.
“Strong traditional credit analysts and underwriters are more difficult to find as corporate lending has trailed off and big-bank lending hasn’t been as active,” he said. “P.E. firms need candidates with experience analyzing traditional middle-market or wholesale commercial loans like that, people who understand what it’s like to underwrite a loan and hold the risk on it, not just sell it off, and that’s in short supply right now.”
Healthcare funds are hiring
Molly Robb, managing director of global life sciences for North America at Horton International, is a recruiter specializing in healthcare investment professionals, healthcare private equity and V.C.-backed portfolio searches. She says that Chinese firms are looking to hire private equity professionals here in the U.S. – investors experienced in the healthcare sector who can help them to staff new P.E. funds or source investment deals, finding bio/pharma or healthcare IT and services companies that they can acquire outright then take the technology to China or build a subsidiary business here.
In addition, family offices are increasingly targeting private equity professionals in their recruitment efforts. In addition to investors, they are hiring numbers-crunchers, analysts and due-diligence support.
Headhunters Odyssey Search Partners says that growth equity’s recent ascent is down to a distinct trend that complements the rise of uncertainty. As access to private capital becomes more abundant, companies are choosing to remain private for longer periods of time. This in turn affects the public equity market, as the later a company issues its IPO, the less volatility one can expect post-IPO, which makes the investment less attractive.
Odyssey says two key recruitment patterns to keep an eye on for 2017 are: increased competition for senior investment and operating talent, and increased emphasis on hard and soft skills – the rise of growth equity means firms can add value not merely quantitatively, but through sourcing expertise as well.
Infrastructure funds are hiring too
Infrastructure funds are likely to be hiring next year, believes Natalie Baranes, a senior consultant in the private equity practice at Selby Jennings.
Candidates and firms see that with the new president there will be a much higher market for this industry and therefore there will be more companies to invest in and the space will grow, she says.
The rise of hybrid funds
Typically there is a clear separation between PE funds and credit funds such as distressed debt, but firms have raised a lot of hybrid funds.
“Firms are looking to staff hybrid funds, which can adapt whether there’s a distressed scenario or markets continue to grow,” said Nick Buffini, managing partner at Lucas Group.
There’s uncertainly about what the future looks like and what will transpire in the market this year and beyond, so hybrid funds can pivot between equity and debt quite adeptly.