The private capital sector has been seriously affected by the current period of turmoil. This is not just the result of a crisis of both financing and profitability, but also a reflection of deep structural issues affecting the core beliefs of the segment.
The private capital landscape is undergoing significant change, caused by huge market losses at funds, substantial write-downs on portfolio companies and the virtual inexistence of new investments over the past 12 months, except for special asset classes at the distressed end of the spectrum. The traditional exit routes for investments are blocked. Investors in private capital, like large pension funds, are suffering liquidity issues of their own and, in consequence, have all but stopped funding the private capital sector. In addition, the sector is confronted with increased regulatory interventions. With all these factors driving change, the end-game is not yet apparent.
As an immediate consequence, the private equity industry is now focusing its resources on managing portfolio companies – which often means a fight for survival. The current market situation has forced many private equity companies to move quickly to implement financial and operational changes in their portfolio companies that will allow them to preserve value.
However, the longer-term outlook for the sector is not entirely gloomy:
- A need clearly remains for private capital to play an important role in the overall economy
- Private capital funds with a stable investor base, sufficient capital to invest and adequate performance are poised to prevail
- Private capital investors will use the demonstrated performance of funds in the current difficult times to decide where to place their bets in the future
- Market turmoil is beginning to depress prices for new investments to historically low levels – which represents an excellent opportunity for a new vintage of successful investments
- Sooner or later, leverage funding will return.
What skills are needed today?
To stay ahead in the game, private equity companies need to ensure that they have access to the most highly skilled staff available, both at investment and financing level and in the management teams of portfolio companies. Most private capital teams have successful, experienced investment professionals – only a few have built capable resources in investment management.
The issue is not only one of recruiting top-quality skill, but also a structural one: how to combine transactional and operative professionals efficiently and effectively, jointly aligned in one team? How to organize the relevant processes and communication? As simple as these questions seem, they have proven no less difficult to answer when it comes to the crucial details.
How can Egon Zehnder International support the private capital industry?
Egon Zehnder International’s global Private Capital Practice segment consists of a highly professional team around the world who partner with senior executives of organizations in all sectors of the private capital industry to address hiring needs and assist with the assessment of existing management competencies, and to support advisory boards. Over 65 consultants worldwide are dedicated to serving clients in the private capital sector.
The management of high-performance teams with the varied technical backgrounds needed to steer companies safely through the crisis poses particular leadership challenges in strategic, talent and human resources management. With our well established
Leadership Strategy Services Practice, including our unique
Team Effectiveness Review service, we are particularly well placed to support private equity companies’ advisory boards and investment- and portfolio-management teams in these challenging times.
Combining our extensive global experience, we bring advice to the table on what works and what doesn’t, what experience has been gathered by others, and how differences in individual markets play out. In many of our close client relationships, we play an important advisory role on structural and organizational issues, and even provide support for the design of market strategies – which subsequently transforms into searches for professional talent.
How we operate
Our unique one-firm approach, which facilitates collaboration across geographical and practice boundaries, enables us to bring highly skilled and experienced teams to the table, with proven expertise tailored to meet the needs of clients, and to achieve credibility with candidates and opinion leaders around the world. By focusing on people and skills management in the context of a specific strategy, we help private equity companies to rethink their organizations and their winning value propositions.
