Private equity funds are cutting partners: "This hasn't happened since 2008"
These are tough times for private equity firms. As 2023 limps to an end, it's been the worst year for exiting invesments since 2013. Long used to optimising costs and cutting heads at portfolio firms, private equity firms are quietly - and not so quietly - turning the axe upon themselves.
"It's the senior guys who are going," says one veteran private equity headhunter. "Partners are being asked to leave rather than the juniors and the mid-levels. I haven't seen this happening since 2008."
At Carlyle, where former Goldman Sachs co-president Harvey Schwartz has declared "no cost sacred" and is engaging in a wholesale review of spending, there are reports of staff cuts at different levels. However, sources say senior cuts are also quietly underway at funds like KKR and Cinven.
Cinven and Carlyle declined to comment and KKR didn't respond to a request to contribute to this article. However, there are signs that people are being ushered into retirement, voluntarily or otherwise: Tim Franks left as head of KKR's business in the UK and Ireland in July; Caspar Berendsen left Cinven after two decades in September.
If costs need to come out, the senior rungs are the best places to extract them. Heidrick & Struggles' recent private equity compensation survey put salaries and bonuses for partners at big PE firms at $2.2m a year. That's a lot when exits are hard to come by. "Partners are expensive, but people want to preserve the juniors and the mid-levels because they're the lifeblood of the firm," says the headhunter.
While private equity funds haven't historically been known for hiring and firing in the style of banks, another veteran private equity headhunter points out that times have changed. The industry is more institutional than it was. In 2008, the big private equity firms were partnerships, but KKR has been publicly listed since 2010 and Carlyle listed a year later. "Some of these firms grew for the pandemic bounce and, with deal volumes dropping, are now overweight people," he says. Whereas previously firms might have sat it out, they're now under pressure to do something about it.
Doing something about it also means diversifying into asset classes like infrastructure and private credit. It means focusing on secondaries, the name for arrangements whereby one private equity fund buys assets from another. One headhunter said demand is increasing for people with experience in the secondary markets.
Despite the tribulations, the headhunters we spoke to for this article said private equity jobs are as popular as ever with young bankers. "It's robust industry and funds are still hiring," says Charlie Hunt, director of the UK at search firm PER. "We're expecting things to be better next year as there's now more clarity and people can make plans."
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