Private Equity Value Creation - 2023 Themes

Looking back at 2023 and forward to the rest of 2024, I thought it worthwhile to share some of last year’s talent themes in the private equity value creation market with my network.?

Despite challenges like lower deal volumes and economic volatility, our practice experienced double-digit growth last year, and we expect 2024 to be busier still.?

I would be pleased to discuss these themes and others in more detail - [email protected]

Select themes observed:

1. The Continual Advancement of Private Equity Portfolio Teams
2. The Rise of the Talent Specialist within Portfolio Teams
3. The Transformation Office in Portfolio companies
4. A Year for Specialist Professional Services Firms

Theme One: The Continual Advancement of Portfolio Teams

While the Portfolio Team market remains nuanced and far from standardised, a prevailing trend emerges with most funds actively strategizing to enhance their value creation capabilities.?

Those with existing portfolio teams are intensifying their efforts, and funds without capability are pivoting and reconsidering their portfolio engagement strategy.?

We observed the most significant demand for ‘mid-level’ (8-15 yrs experience) ‘generalist’ candidates, with a distinct preference for those with prior PE fund experience, or a track record of driving transformation or gaining P&L ownership within a private equity portfolio company.?

In general, we saw a subdued appetite for hiring at the senior level (20-30+ yrs) and ‘entry-level’ associate grades. The latter is perhaps influenced by deal-team Associates increasing % of time spent on matters within the portfolio.?

Theme Two: The Rise of the Talent Specialist within Portfolio Teams

The functional specialist market within portfolio teams undergoes continual evolution. Digital and/or Data Science have become a staple for many, yet domains such as Pricing and Supply Chain showcase varying degrees of success and adoption.?

2023 witnessed noteworthy growth in Talent and HR specialists embedded within portfolio teams. The focus varies broadly depending on the team’s strategy and the individual profile, with efforts ranging from executive hiring, talent strategy and workforce planning, leadership development and coaching, performance management, HR strategy and technology, and diversity and inclusion. The latter is tied to Private Equity’s heightened focus on ESG and the interconnected relationship between D&I initiatives and the broader ESG framework.

The rise of portfolio team talent roles coincides with Private Equity’s amplified focus on the Chief People Officer (or equivalent) role in portfolio companies, now recognised as a critical portfolio leadership hire. It further emphasises the importance of talent management and HR in investment thesis’ and successful value creation.

As with other more recent additions to portfolio teams, such as ESG, the value of these hires is yet to be proven over a sustained period.?

Theme Three: The Transformation Office in Portfolio Companies

Navigating the post-acquisition landscape, each fund, and individual portfolio business chart a unique course. Operationally led and ‘hands-on’ funds have intensified transformation efforts, and historically, ‘lighter touch’ funds have become increasingly proactive and interventionist.?

This commonly manifests in hiring a Chief Transformation Officer (or equivalent), which is fast becoming a core leadership role in Private Equity value creation. When a significant transformation is required, a central transformation office team often supports them. Smaller portfolios, or those requiring less complex transformation, may opt for a Chief of Staff/Directors of Special Projects resource – a less invasive approach than hiring a Chief Transformation Officer. The tactical use of interim talent to support management teams across key VCP initiatives is ever growing.?

The transformation office, which leads on VCP tracking and governance, becomes the linchpin for fostering resilience and adaptability within portfolio companies.

Theme Four: A Year for Specialist Professional Services Firms

2023 presented a challenging year for the PE practices of many large consulting firms – especially those reliant heavily on due diligence work.?

In contrast, numerous niche and specialist firms focused on the private equity market experienced a growth year. Particularly those with deep expertise in leadership assessment, data science, IT transformation, supply chain, and procurement. With the ability to offer more flexible and cost-effective solutions, this market is poised for continued growth.

Looking Forward to 2024: Carve-Out Experience and AI-Driven Value creation

With the pressure still on funds to proactively drive value creation in portfolios, we expect many of 2023’s trends to continue.?

This year, we foresee a heightened demand for candidates with carve-out experience. Anticipating a high volume of deals led by carve-outs, particularly from corporate businesses seeking to optimise cash flow and divest assets.?

Second, with Private Equity continuously exploring the applications of AI, only accelerated by recent advancements, demand will continue to grow for candidates with proven experience in driving value creation through AI.?

Across both areas, those with direct private equity experience will be most in demand.?

Adam Lee: [email protected]