More than 4 million U.S. workers quit their jobs in August—a record 2.9 percent of the labor force, according to the U.S Bureau of Labor Statistics. And that has us wondering whether the pandemic-driven “Great Resignation” has reached our own industry.
To be sure, private equity firms are subject to turnover and attrition just like other companies. But they’ve always had a glue to prevent it. Once investment professionals hit the mid-level, firms typically award them an allocation of profits in the form of carried interest, or carry. Senior investment professionals enjoy even higher allocations.
It can take years for carried interest to turn into cash compensation; moreover, carry is typically subject to vesting over eight or more years; and leaving early voluntarily usually means forfeiting some if not all of your unpaid carried interest. “You don’t really reap the golden egg unless you stay,” said Kenna Baudin, partner and global co-head of private equity at executive search firm Egon Zehnder.
So far this year, Private Equity Career News has tracked 653 hires by PE firms, both investment and administrative, to staff offices in the United States, Canada and London, according to our non-comprehensive hiring database. Of those, an estimated 182 hires, or 28 percent, came from other buyout firms. At the junior level (235 hires) the figure is 11 percent; at the mid-level (225 hires) it is 41 percent; and at the senior level (193 hires) it is 33 percent. We don’t have historic numbers for comparison.
Meantime, a survey by Private Equity Career News of 155 private equity professionals this spring found half of junior professional saying they were likely or very likely to launch a job search in the next 12 months (see chart above). The same goes for 36 percent of mid-level professionals and 23 percent of senior professionals. That sounds like a “Great Discontent,” if not a “Great Resignation.”
Baudin points to the majority of respondents planning to stay at the mid and senior levels as evidence that carried interest hasn’t lost its powers of retention. But she also described forces at play across the industry provoking turnover. As the industry matures, more firms find themselves in the dreaded bottom quartile of performance. Professionals that don’t see profitable fundraises ahead for their firms turn ripe for recruiting. At the same time, many high-performing firms raising larger funds need more people to invest and administer them. “They ideally want people with private equity experience,” said Baudin. “So they go and hire [professionals] from the smaller firms.”
In addition, said Baudin, people tend to gravitate toward the hot investment strategies, and today that’s growth buyouts in fast-growing industries such as technology. “It’s become an exciting place to play for a lot of” professionals. True, the larger, more diversified shops can introduce new strategies and fund families. But that’s not an option for every firm.