Trends in private equity hiring in Asia

While private equity (PE) firms tend to be cautious and meticulous recruiters, rapidly growing players in Asia are willing to take a longer term view on hiring.

At the heart of a PE firm’s survivability is its ability to establish and sustain deal-flow in the complex and fast moving market.

However, the development of the Asian PE industry has not been matched by the availability of competent and experienced PE professionals.

Without familiarity with the local networks, deal-flow access can be challenging. While firms have reassigned deal sourcing responsibilities to their present workforces, the ultimate constraint are new hires who firms train to build relationships and to convince potential investees about their value-add.

In Asia where businesses tend to be family-owned conglomerates, the ability to implement turnaround disciplines and adapt management approaches is highly valued. Talented managers who can improve companies and drive performances usually possess direct, related operational experience, and they can make the best returns quickly and effectively.

Industry Dynamics

Over 2012, financial services professionals who are trained in the US and Europe and with experience in investment banking or management consultancy were highly sought after. The dynamics is unlikely to change this year as PE firms seeking long term stability and success would hire professionals with a strong combination of skill-sets and a focus on growing investments along industry drivers.

For many analysts and associates in the banking industry, joining private equity is usually the next career step. As the market demand for PE professionals rises, buy-side shops are actively recruiting bulge bracket analysts with M&A experience.

Especially for young talent who have contributed to native M&A transactions, they are highly sought after by PE firms and their head-hunter affiliates.

At the junior levels, natives are mostly prized for their ability to assist Western firms in establishing their offices in the region.

Thereafter, PE analysts and associates are hired on an ad-hoc basis instead of being hired in the summer.

In Asia, fresh university graduates might be sourced by bigger PE firms which are aiming to build a bench. They are trained to understand the firm’s culture and to build analytical skill sets while joining experienced deal makers who are tasked to mentor them.

These talents eventually become full-fledged PE professionals, and this contributes to overall team stability over a series of fund cycles.

At the senior level, firms are on the lookout for leadership, and this usually means professionals who have worked at well-known and global PE firms for years.

These senior managers and directors have typically earned their stripes in English-speaking cultures, have enriched their insights into diverse business practices, and have nurtured invaluable business networks as they move around the world.

Crucially, Western firms value Asia-oriented professionals for their ability to manage local portfolios while managing internal relationships with their headquarters back home.

However, a note of caution for Western firms is that a few senior hires are no longer sufficient to establish regional operations.

As prospective investees have been exposed to the first wave of PE firms, they have become more professional in their engagement, and they expect to discuss the potential deal with complete teams of PE professionals. The work becomes heavy and a diverse human resource base is required to navigate both the investment and the portfolio processes.

PE firms recognise that by hiring across all levels of management and operations. In such firms, it is vital to implement performance management systems early where promotion is based on meritocratic and transparent rubrics for the largely Western educated pool of recruits.

Compensation and Retention

Addressing recruitment issues might require PE firms to plan their retention strategies carefully. The trend of shrinking fees due to the increased staff hires requires proper deliberation on compensation and culture.

In an increasingly competitive recruitment market, firms should communicate the right perceptions on their ability to distribute carried interest equitably and to manage professionally.

Especially for newly established firms in the region, the bias of them being profit chasers and short term in nature has to be shaped to a market awareness of their stability and fairness in HR practices.

It is important to inform junior hires of their key performance indicators and compensation structures for bonuses. This supports the bedding in of appraisal systems which are transparent, and firms which do so can also set goals related to employee-driven brand communications and general activity levels.

As junior hires get promoted, they can be incentivised through carried interest and share plans, though this should be controlled based on the firm’s perceptions of the job market. Asia-based PE firms tend to be more comfortable on performance-based bonuses and can be scrupulous managers of the setting up of sub-regional or country operations.

For both Western firms and native PE firms alike, it has become increasingly prudent to split the carry allocation across the fund team. This has countered the likelihood of managers striking out on their own and operating in silos within their territories of coverage.

Nevertheless, PE firms should go ahead to establish their presence around key Asian countries.

Overall, hiring remains robust in Asia, and firms with the capability to think longer term should move ahead on recruitment this year.