The battle for top talent intensifies: Reflecting on the Private Equity Europe Forum
This year, InX sponsored the 6th Annual Private Equity Europe Forum, the leading investor-centric event for LPs investing in private markets across Europe and globally. With expert speakers from Francisco Partners, HarbourVest and more, attendees got to hear exclusive insights on sectors, due diligence and private equity investment opportunities.
In attendance was InX’s own Matt Harvey, senior partner for private equity, who heard some “encouraging sentiment from PE figureheads”. Here are his five key takeaways.
Private equity funds are focusing on building better companies through value creation
In environments like these, with recession fears, high-interest rates, a lack of deal activity due to a high cost of capital, high prices and nervous buyers – the only way to create substantial value and returns is by building better companies. This plays into the hands of investors with strong operational capabilities and deep networks, which is why PE funds up and down the stack are strengthening their in-house operating partner teams and exec advisor benches, as well as deploying transformation executives inside management teams.
It’s encouraging to note that this view was emphasised across the board of event speakers – senior investors from the likes of Bain Capital, Blackstone, Apollo, Advent, Cinven, Francisco Partners and Nordic Capital, as well as investing figureheads from smaller private managers.
As an executive search partner focused on building PE operating partner teams, one of the common complaints we’ve heard over the last 20 years is their feeling of second-class citizenship or inferiority to the deal-makers, precisely because value creation has long since been seen as the poor cousin to financial wizardry. Operating partners will therefore be comforted by senior investors placing value creation firmly in the spotlight as the key source of upside / alpha creation in these challenging market conditions.
Having a strong operating team is also becoming increasingly crucial in the courtship process with founders before a deal is done. Jeremy Sanders at Catterton observed that founders are increasingly challenging would-be investors by asking “what are you going to do to support our growth agenda?” – so PE funds need to resource themselves to react to that challenge and deliver against the opportunity.
What constitutes a strong operating team is also shifting – in today’s environment funds require seasoned operators with real-world industry experience who have weathered tough market conditions and can remain cool-headed to help CEOs course-correct when things go wrong. Advent’s Antoine Guillen agreed – the challenge for an operating team is the execution, so an operating partner needs to know how to execute not just advise.
AI continues to be a key business productivity enabler, but not necessarily a sub-sector for dedicated PE investment
There’s lots of hype around AI but it’s all about having a proven use-case. Ekaterina Almasque from Venture Capital fund OpenOcean cited a survey where only a third of 3000 VC backed companies actually had an identifiable use case despite all of them claiming to be “AI-first”.
On the other hand, Francisco Partners’ co-president Deep Shah was bullish about AI’s impact as a growth driver that can revolutionise margin expansion, and talked of how FP are engaging with R&D heads across their 60 portfolio companies to use AI for salesforce effectiveness improvement, cost reduction and accelerated coding and software development.
Gilbert Kamieniecky at Investcorp also discussed the threat and opportunities associated with advanced AI and ML, including the increased sophistication of phishing (providing strong tailwinds for cyber security investing) as well as defence against it.
To hear more about the ever-evolving interest between strategy consulting and generative AI, subscribe to Joe Siantonas’ (associate director for interim value creation and strategy consulting) weekly newsletter.
PE has a tremendous opportunity for both positive impact and great financial returns in our green transition and net zero journey
Raynir Indahl of Summa Equity – an impact investment fund aligning itself to the pillars of resource efficiency, changing demographics and tech-enabled transformation – talked passionately about PE’s opportunity to invest in system change where there are upside returns (coined as PE 5.0, for which the Nordic PEs are at the frontier).
Rather than buying traditional companies and trying to improve their sustainability whilst also seeking financial returns (a practice which can present inherent tension in the context of PE payback periods) he encouraged investing in businesses where sustainability is a fundamental part of their strategy. He cited Summa’s report “Investing in a circular and waste-free Europe” which estimates the cumulative investment for a new asset base for the circular economy to be €230bn by 2040. Such investments can generate attractive returns, as the potential valuation of circular markets exceeds $1.5 trillion by 2040. Wol Kalade of Livingbridge and Tara Reeves of Eurazeo discussed how the PE industry also presents an exciting career proposition for younger and increasingly mission-driven generations because of the industry’s ability to move swiftly on ESG.
Investor sentiment was bearish and bullish in different pockets
Tech has been more shielded than most sectors, but not immune, with pockets of growth and tailwinds in the mid-market generally, and thematically in ed-tech, health-tech (with some businesses capitalising on heightened demand for digital delivery and enhanced customer experiences), industrial tech and fintech. Despite a flat IPO market, tech investors continue to feel confident about exit opportunities to strategics (including an increasing number of PE backed ones). The 5 largest tech companies have over $1 trillion to invest, and we’re also seeing large industrial players becoming voracious acquirers of disruptive tech scalers. Outside tech, there are strong tailwinds for businesses supporting our environmental imperative – such as businesses selling green products to decarbonise industrial processes. It was also suggested by Rebecca Gibson at Oakley that a drop in large-cap deals had disproportionately skewed the numbers to make the market seem worse than it was – with midmarket investors remaining fairly active. Victor Mayer at Pantheon discussed the trend of increasing localisation of European investor teams to capitalise on Germany’s low PE penetration, Spain’s lower entry valuations, lower labour costs and strong emerging talent, Italy’s industrial gems, and the Nordics’ green push. For Mayer, investors that recognise the importance of local culture in their investment and operating teams will thrive.
The battle for top talent intensifies
As Matthew Turner of Triton highlighted, in tough markets you need better talent, so a fund’s ability to generate high performing professionals is key to generating impressive returns. Anthony Cordona at Cinven added that PE is also getting better at professionalising people management – both internally and inside their portfolio companies. When it comes to landing top talent, an obvious improvement area voiced by HR and talent operating partners inside the funds is to have slicker hiring processes. Several HR heads complained of unnecessarily lengthy and poorly planned selection processes riddled with bias, with senior figures hiring cookie-cutter suits on repeat and running starkly against PE’s DEI imperative. Jenny Collins, former Googler and now talent head at Mayfair Equity Partners, spoke to their Google-inspired rule of 5 (as opposed to PE’s usual 10+ round interview process) with senior interviewers being challenged to stick to focused skills-based interrogation, and to work collaboratively with other interviewers to ensure all bases are covered. As basic as this might sound, course-correcting wayward hiring processes will give funds a competitive edge in landing exceptional people, including diverse candidates from non-PE environments.
If you’d like to find out more about any of the topics discussed at the Annual Private Equity Europe Forum or you’d like to talk to us about finding your next senior private equity role or making your next PE hire, please contact our private equity team.