Private funds leaders on value creation in a downturn

Talent management remains the critical operational lever, amid a strong hiring market for private debt.

Talent management is the most important operational lever to a successful portfolio company investment cycle in challenging times, cited by 46 percent of respondents to the Private Funds Leaders Survey 2021. Delivery of a value-creation programme and effective cost management ranked second and third, followed by technology integration, bolt-on acquisitions and working capital efficiency.

“The hiring market for private debt is on fire at present and we are seeing record levels of demand for candidates. Candidates with two to four years of leveraged or acquisition finance experience are very much in demand with a number of private debt teams looking to add headcount at this level,” says Will Invine, director of Stem7 Executive Search. “Private debt is the most active area but we are also seeing demand from performing credit teams as well as platforms focused on the fund of funds space.

“Candidates are very much in the driving seat currently and are receiving multiple offers from top funds. There has also been an exodus from many of the relevant financing teams across investment banking in 2020 which is creating a battle for the best talent between the credit funds and the investment banks, who are desperate to retain their talent and hire extra resources themselves.”

Shani Zindel, chief investment officer at Livingbridge, agrees talent is crucial. “Nothing beats a good management team. Absolutely nothing.”

But Silverfleet Capital Partners managing partner Gareth Whiley says technology is the largest operational lever that most companies will have to deal with in the near future – for good and for bad.

“Clearly, technology implemented well can dramatically improve operational efficiencies but, if you are slow, it can leave you at a great disadvantage and the pace of tech change is now so fast that it can easily impact during the life of a portfolio company investment,” Whiley explains.

“So, technology and the need to navigate a globalised market and supply chain when covid and politics are challenging cross-border trade in a way we haven’t seen for a long time are the key operational issues and opportunities near-term.”

Frank Nash, founder and managing member of ATL Partners, adds that while people management, cost management and good technology have always been key to performance, what now requires greater focus than ever before is knowing one’s customers and potential customers.

“Tastes, needs and methods of buying amongst both businesses and consumers change rapidly and companies need to stay current with those changes,” he says. “Sometimes that requires technology, sometimes it requires research and sometimes relying on people who are really good at keeping their ears to the ground and hearing the faint noises in the distance.”

The survey also revealed that respondents expect to significantly increase headcount at both a portfolio company and sponsor level. Almost three-quarters expect to boost aggregate employees in their investee businesses this year, while 67 percent expect to do the same at the GP.

Littlejohn & Co president Brian Ramsay. says there is no question his firm will be investing heavily in headcount at both a GP and portfolio level, adding that labour markets are experiencing a tightening that is surprising given the downdraft of 2020. “This is evident at the rank-and-file level where we are seeing meaningful wage increases in order to support the rebound in production or activity, as well as the senior executive levels where we are seeing aggressive poaching by competitors as demand and profitability return.”

At the GP level, Ramsay says Littlejohn & Co is making significant investments to support deal execution and portfolio company performance, as well as adding business development and sourcing resources, and capital markets expertise.

Zindel has also noticed a trend towards GPs recruiting a broader mix of individuals. “There is more of a focus on internal talent management, more industrial hires and more international growth. We are also seeing firms building their own internal debt teams, for example. Firms are expanding their expertise in all sorts of different ways but, overall, the direction of travel is more investment in human resource, not less.”