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A Glimpse Into the Shifting Priorities of Private Equity Leadership

Each year, the Ernst & Young Global Private Equity Survey closely examines the world of private equity executives. This year, CFOs and COOs seem to have one particular thing on their minds: talent management. The focus on talent has been shaped by emerging industry trends and a consistent focus on growth, among other industry shifts.

Here’s a closer look at how PE financial executives plan to steer their companies to success over the industry’s changing tide.

How Are Trends in the World of Private Equity Shaping Strategies?

Of all private equity trends, the most significant is probably the growth in total assets under management. In the past decade, total assets under management by private equity firms have gone from $2 trillion (in 2013) to $4.4 trillion (in 2022).

Private Equity Now Runs on Talent

The fact that this growth is so significant and occurred in such a short time frame means that PE firms have had to scale both operations and technology in order to keep up. That scaling has had to happen at lightning speed, so financial executives are, of course, focused on how to drive steady, sustainable growth going forward.

Another trend to be mindful of is regulation. If you’re familiar with current trends in private equity firms, you know that recent years have been full of pushes for stricter oversight. Some have been successful. Others have not. But the general trend seems to be moving toward tighter regulations — which have the potential to significantly disrupt the PE industry.

The EY survey asked financial executives in private equity firms about their main strategic priorities (aside from asset growth). Here are the priorities the executives named, in order from most to least important:

Talent management
Improving processes in the back office
Environmental, social, and governance (ESG) factors
Expansion of products or strategies
Transforming technology
Cost management
Transaction readiness

Why the focus on talent management? The survey found that it was regarded as a high priority by executives at private equity firms of all sizes. That’s largely because, across the board, CFOs see talent management as a key part of their growth strategy.

How Are Private Equity CFOs Planning to Accelerate Growth?

Great talent management — especially hiring and retaining the right people — is looking to be one of the most popular growth strategies for private equity firms. However, the survey found a few other key strategies named by financial executives:

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Reaching Out to New Sources of Capital

Private equity firms see individual investors (and especially individual retail investors) as potential catalysts for growth. That interest seems to be largely mutual — after all, smart investors are always looking for ways to diversify their investments. Successful PE firms will often yield much higher returns than many types of traditional investments, too.

Expanding Product Offerings

Expanding product offerings seems like a natural follow-on to seeking new investors. Financial executives are keenly aware of the fact that alternative investors are more likely to be drawn in by a diverse product mix.

Shifting Priorities When Choosing Transactions

Traditionally, when evaluating a potential transaction, PE firms look at one thing: maximizing value. However, results of the EY survey suggested that private equity CFOs are expanding what they look for when choosing transactions.

More than half of respondents believed that finding a partner who would help the firm grow the business was valuable. Nearly half also thought it would be valuable to find a partner who would help preserve the firm’s culture.

What Are Private Equity Executives’ Main Talent Management Goals?

Haven’t most firms always made talent management a priority? In many cases, that’s true. However, ever since the Great Resignation of 2022, nearly every industry has experienced new challenges when it comes to hiring. The firms responding to the survey reported a range of priorities in the realm of talent management:

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Attracting and Retaining Talent

In the wake of the Great Resignation, PE firms seem to experience the greatest difficulties when it comes to retaining junior employees (those with three years of experience or less).

The EY survey did not go into detail about how the surveyed firms intended to address staffing problems, but this issue would benefit from more investigation. Perhaps PE firms simply need to better engage newer employees. Another possibility is that they’re seeing a generational shift that can only be addressed with a strategic action plan.

Increasing Diversity and Creating an Inclusive Work Culture

In recent years, diversity, equity, and inclusion (DEI) efforts have become central to many businesses’ success. Investors are beginning to care about more than just their returns; they have started to preferentially invest in companies they see as being socially responsible.

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What does this mean for private equity firms? If a firm cultivates a genuinely diverse, inclusive workplace and adopts clear, detailed DEI initiatives, it may draw in more investors, which may, in turn, result in significant growth.

Developing an Effective Hybrid Work Plan

COVID-19 impacted every industry. One of its lasting effects is the prevalence of remote work. As restrictions eased, many companies expected employees to return to the office. Some did, but many made it clear that a hybrid schedule — a work schedule that combined both in-person and remote work — was ideal.

Broadly speaking, companies that responded to the survey didn’t rank creating a hybrid work plan as highly as they ranked creating an inclusive culture, supporting diversity, or attracting and retaining talent.

However, its standing in the survey is a good sign that more firms are listening to employee concerns and attempting to craft a solution that will work for individual employees and for the business as a whole.

What Can You Take Away From the Survey?

You don’t have to operate a multinational private equity firm to glean valuable insights from the annual EY survey. And in 2023, the main insight seems to be this: Don’t underestimate the importance of talent.

When you attract and retain top talent (and deploy that talent effectively), you can expect to see growth, no matter your company’s size.

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