Deal flow picked up more than expected at private-equity firms last year. And that means that this year, they're hiring.
In the U.S., firms want to hire junior investment professionals, operating executives, as well as fund marketing and investor relations professionals.
Related: How to Write a Private Equity Resume
Associates and Analysts
Many buyout firms held off hiring investment professionals in 2009 and into 2010 as they shifted resources away from new investments to focus on guiding the companies that they already owned through tough financial times. However, deal volume rebounded more rapidly than anticipated in 2010, prompting more firms to bulk up their analyst and associate teams. Global buyout deal volume rose to $195.7 billion in 2010, an 85% increase over 2009 levels, according to data research firm Dealogic.
Battery Ventures, Blackstone Group, Riverside Company and Summit Partners are only a few buyout and venture capital firms that are recruiting at the analyst and associate level for the coming year, according to people familiar with these firms.
"It's a lower-commitment hire and firms still need the analytical horsepower," said Brian Korb, partner with New York-based executive recruiter Glocap Search, "So [associate hiring] doesn't fluctuate as much in correlation with the market."
Blackstone Group expects to add around four third- and fourth-year pre-MBA analysts (those who have two-to-three years of work experience and an undergraduate degree but have yet to get their MBA) to its private-equity business over the coming year, an increase in the number that it averaged in the past couple of years.
"We're coming into a new cycle, and are anticipating an increase in investment activity," said Lauren Buxbaum, a senior vice president at Blackstone who heads the firm's global recruiting efforts.
Typically, these analysts have a couple of years of financial experience under their belts, often at an investment bank or consulting firm.
New York-based Riverside Company, which focuses on investments in small and mid-sized companies, plans to add four or five analysts at the pre-MBA level, typically recruiting out of investment banks. In the U.S., the firm also expects to add three or four associates, which it typically hires out of business school.
"Deal flow has definitely picked up and we've got a big portfolio to manage," said Peggy Roberts, managing director of organizational development, who oversees the firm's global human resources.
Because many private-equity firms tend to promote from within their own ranks, the hiring process, even at entry levels, is often rigorous and competitive.
"Ideally you don't want to end up hiring someone that won't work out because the risk of making a mistake is higher," said a partner at one New York-based private-equity firm who wished to remain anonymous. "If that person doesn't add value, it's not as if you can put them in a different function."
For those who do make the cut, however, private equity continues to offer lucrative compensation. Senior associates at buyout firms and growth capital firms, typically hired out of business school, earned an average of $313,000 in base salary and bonuses in 2010, according to the 2011 edition of the Dow Jones Private Equity Analyst Glocap Compensation Report, a research report published late last year by Dow Jones in conjunction with Glocap Search. Senior associates at venture-capital firms earned $203,000 on average, according to the report.
Although hires at the vice president-, principal- and partner- level have been slow over the past 12 months, as the industry heads into a new year hiring activity may start to pick up, according to Korb of Glocap, adding that Glocap has worked on at least two senior-level searches in recent months.
"Firms feel like they're in a position of confidence again," said Korb. "It hasn't translated into a wave of searches but it feels like there is some general build-up in momentum."
Outside of the investment professional ranks, private-equity firms also continue to hire operating executives to grow their portfolio companies.
Firms intensified their focus on operational improvements at portfolio companies after the economic downturn of late 2008 when many were struggling under debt loads assumed during frothier times.
More recently, as pricing for deals, particularly in the middle market, has risen, the ability to improve the operations of those companies will be even more important, especially if a firm had to pay a bit more than it hoped to win the deal.
"Operating partners are still in vogue," said Korb. "Some firms that don't have an operating partner model are still saying they want to develop it."
Riverside, which has a team of more than 20 operating executives around the world that it has built since 1999, expects to add to that number in the coming year, according to Roberts. Typically, the firm looks for professionals with lengthy experience, often 20 years or so -- and with a specific industry or functional expertise, she added.
Compensation structures for operating professionals vary from firm to firm. Some firms hire operating professionals as full-time partners that not only receive a salary and bonus but also share in a fund's carried interest, a term used to refer to the firm's share of the profits produced by its funds. Other firms employ operating executives on a part-time basis, bringing them in only on specific projects or to work with specific companies. In that case, the firm may allow the operating executive to share in the profits produced when it exits that particular company, rather than allowing the professional a share in the profits from all of the portfolio companies across an entire fund.
Private-equity and venture-capital firms have also beefed up their investor relations departments over the past 12 months, a trend that recruiters and other industry observers expect to intensify as the next private equity fundraising cycle kicks into high gear in 2011.
J.C. Flowers & Co., Oak Hill Capital Partners, Lexington Partners Inc., and TA Associates Inc., are only a few firms that have either added staff to their investor-relations ranks in the past 12 months or are expected to add to them this year.
Historically, only the largest private-equity firms tended to have a dedicated investor-relations professional on staff, with many firms relying on a senior deal partner, an outside placement agent or some combination of the two to market their funds.
Only 16% of firms surveyed for the 2011 edition of Private Equity Analyst Glocap Compensation Study have a dedicated head of marketing on staff, and most of those are large and mid-sized firms.
Because most private-equity firms tend to raise a new fund only once every two to three years, they felt little need to maintain a dedicated marketing or investor-relations professional in house.
However, competition for capital has intensified in recent years and investors are demanding more information more frequently than they have in the past. At the same time, heightened regulation prompted by a series of high-profile scandals involving kickbacks paid to public pension officials has put pressure on the placement industry.
The push and pull of these factors has convinced more private-equity firms to build their own internal team of IR professionals.
On average, a vice president on an investor-relations team at a private-equity firm may earn anywhere between $200,000 and $500,000 annually, depending on the person's experience and the size of the firm, among other factors, according to the Dow Jones Glocap report. Depending on the firm, senior ranking IR professionals may also be entitled to a portion of the firm's carried interest, which typically is 20% of the fund's total profits.
Laura Kreutzer is the assistant managing editor of Dow Jones Private Equity Analyst, which covers fund-raising and other news of interest to the private-equity community. Write to Laura here.
Related: How to Write a Private Equity Resume