Over the past five years, middle market private equity has grown exponentially. But as the first generation of middle-market private equity leaders nears retirement, many firms are struggling with how to move forward, even when faced with increasing pressure from their limited partners.
“The reality is we’re getting to that point when many investors expect to see a potential No. 2 at the table, but a lot of these firms haven’t had the conversation yet,” says Kenna Baudin, who leads the U.S. private equity practice at executive consulting firm Egon Zehnder. “The point where this can get messy is if you have junior partners that are starting to do the math and they don’t see a pathway forward, you might start to see people leave,” Baudin says. “People need to feel fully vested.”
As the middle market continues to mature, founders will have to get comfortable with sharing a piece of their compensation and avoid the temptation to raise increasingly large funds to offset the cost of building a team. Creating a succession plan proactively, bringing junior partners into the fold early, and building an internal culture where individuals feel empowered to take on responsibility are three crucial ways for midmarket GPs to sustain their business from fund one to fund 10 and beyond.
Full Story: Succession Planning: The Thorny Conversation No GP Wants to Have. By Bailey McCann, 19 July 2018