Analysis: Small firms offer private equity job market bright spot
26/07/2023 11:00
By Maiya Keidan
July 26 (Reuters) - It's getting more difficult to land
a job in the private equity industry -- unless you are willing
to join a smaller firm.
Buyout firms specializing in small deals are braving a
slowdown in hiring for dealmakers, as they skirt the financing
and fundraising challenges hampering large leveraged buyouts,
dealmakers and recruiters say.
This is giving the small firms rich pickings for talent that
traditionally snubbed them for more lucrative careers at bigger
peers.
"The resumes that I'm seeing -- and the quality of them --
are better than what I've seen in a long time," said Robert
Covington, managing partner of Braemont Capital Management LLC,
a Dallas-based private equity firm that earlier this year raised
its first fund, amassing $525 million.
"It used to be really hard to leave one of the bigger firms
because of what they are being paid or the opportunity and
that's just not there right now," said Covington, who was
previously co-managing partner at RedBird Capital Partners
Management LLC, a much larger private equity firm with $8.6
billion in capital under management. Braemont, which employs 11
people, plans to hire three more by the end of the year.
Industrywide data comparing hiring at large versus small
private equity firms is not available, but some surveys
conducted by executive headhunters show this trend.
Out of 15 U.S. private equity firms surveyed by New
York-based recruiting firm Eastward Partners, 12 reported hiring
had fallen in the six months to the end of May. Two of the firms
where hiring picked up over the same period were smaller, with
less than $1 billion in assets.
Matthew Simon who last year left Ardian, a private equity
firm that oversees $150 billion in assets, for Gamut Capital
Management, which manages over $2 billion, says he sees faster
professional and personal growth at a small firm.
"Working with the senior most leaders of our firm on a daily
basis, all good ideas are heard and decisions are made quickly,
so there’s increased responsibility and ownership," Simon said.
The current deal financing environment is also making life
easier for smaller private equity firms, industry insiders say.
They need less debt for their acquisitions, which has become
more expensive and scarcer amid a spike in interest rates and
concerns about an economic slowdown.
"A smaller deal is less likely to be dependent on debt
financing and there's less friction on getting those
transactions to the finish line," said Brian Gray, a
Toronto-based partner at law firm Osler, Hoskin & Harcourt LLP.
"There (are) lots of sub-$100 million dollar transactions
that are ongoing."
U.S. private equity deals worth less than $5 billion fell by
45% to $119.2 billion year-to-date, according to Dealogic data.
Private equity deals worth more than $5 billion, meanwhile, fell
by 63% to $94.3 billion.
As risk-averse investors scale back their commitments,
raising a private equity fund is also easier when it is smaller.
North American firms seeking $5 billion or more raised $305.8
billion in the 12 months to the end of June, while funds raising
under $5 billion amassed $403.2 billion over the same period,
according to Refinitiv data.
Richard Kunzer, a co-founder at New York-based private
equity firm Integrum, which raised $1.1 billion for its
inaugural fund in May, said while fundraising is never easy,
investors were more willing to back smaller firms because middle
market deals are often less dependent on using high levels of
leverage.
"In three of the four portfolio companies we have, we don't
have any leverage in the deals," Kuzner said. His 22-person firm
added five new team members in 2023.
BIGGER FISH IN SMALLER POND
To be sure, joining a private equity firm can be less
financially rewarding.
The average compensation of a managing director at a private
equity firm with assets under $1 billion is $462,000, compared
to $915,500 for that of an executive at a private equity firm
with assets between $5 billion and $10 billion, according to the
most recent compensation report by Heidrick & Struggles.
But that is just one of the considerations, private equity
insiders say. A smaller firm can offer shorter paths to more
senior roles. Small firms are also spread out across big North
American cities, rather than being concentrated in New York.
The major private equity firms are also setting the bar
higher for the few positions that they offer. Blackstone Inc
BX.N Chief Executive Stephen Schwarzman told analysts on the
firm's quarterly earnings call last week that only 169 out of
62,000 applicants got entry-level jobs with the New York-based
firm this year, making it 12 times as hard to get in than
Harvard University.
John Rubinetti, a partner at executive search firm Heidrick
& Struggles' New York office, said the smaller firms were
reaping the rewards of some of the challenges that bigger firms
face.
"I see that more hiring is happening at smaller firms," he
said. "They are now taking advantage of the market being more
favorable to make new hires, where they were overshadowed by
larger groups in previous years."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
U.S. private equity M&A by deal size https://tmsnrt.rs/3Dko0Hb
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Reporting by Maiya Keidan in Toronto
Editing by Greg Roumeliotis and Chizu Nomiyama)
((Maiya.Keidan@thomsonreuters.com; 1 226 688 4571; Reuters
Messaging: maiya.keidan.thomsonreuters.com@reuters.net))