5 Ways PE Firms Can Drive Growth Leveraging Human Capital

5 Ways PE Firms Can Drive Growth Leveraging Human Capital

Provided an investment’s average hold period being five years, it becomes critical for every PE firm globally to recognize the human capital needs. Realising the significance of talent and leadership is becoming increasingly important.

Forbes says – Wrong leadership overseeing the companies in the PE sector had led to portfolio firms failing to bring the expected returns for their investors 50% of the time.

Tactics to Drive Growth in PE Through Human Resources

1. Don’t Complicate the Human Resource Strategy

   • A majority of PE firms are still clueless about building a strategy that could engage people in their portfolio organizations in a manner so as to generate optimal business value.
   • Portfolio companies’ human resource strategy must promote collaboration among the C-suite leaders and the lower management.
   • PE firm’s HR strategy must ensure that the management and the associates are on the same page when it comes to business growth strategy for the portfolio firm.

2. Human Capital Strategy Must be Formulated in the Initial Six Months

   • Private Equity firms generally set a strategically-designed business master plan in the first few months for the investment period. Similarly, a human capital strategy that involves identifying leaders, nurturing talent, and evaluating the firm’s corporate culture, must be planned.
   • After carefully strategizing on human resource deployment, the resulting corrective measures must be implemented in the first couple of years. The HR plan should get ready to be exercised by the second board meeting.

3. Thorough Assessment of Leadership

   • Keeping a motivating culture intact in the portfolio firms is critical. Considering five-year investment growth as the ultimate goal, PE investors must gauge the performances of CEOs, and their principal leaders from time-to-time.
   • Determining organizational strengths and shortcomings, and assessing the firm’s readiness to constantly changing industry and technology trends is vital for any PE firm.

4. Make Strategic Investments on Talent Development Hiring

   • A large share of PE investors and portfolio firms lack the patience to initiate and implement long-tailed leadership development programs. Investing in the same can have a positive business impact in the long term.
   • Strategic investment in developing human capital can do wonders. It includes training and development of executives, providing 360-degree feedback, and mindfully recruiting subject matter experts.
   • Bringing together a high-performing management team leads to yielding great dividends in the future.

5. Assign an Accomplished PE “People” Executive

   • PE companies with $10 billion or above in assets must hire a credible “leadership development” executive at their portfolio firms. Engaging organization strategists, leadership experts, and performance coaches help human capital (PE Professionals) to grow significantly.
   • Allocating leaders for human capital development at PE firms could prove beneficial in more ways one can think of. They assess key talent, establish best practices to be followed by the organization, and the varied teams that exist within it.

Concluding Thoughts

Given that the PE industry in 2020 is stacked with dry powder, a lot of deal-making in the form of M&As is destined to happen. It also points towards a surge to be seen in the private equity jobs this year. It is the best time for finance graduates worldwide to make careers in private equity.

Addressing talent gaps and nurturing leadership in PE is no longer limited to big financial firms. In 2020, we will see focus building up on leadership needs. Exceptional talent will get hired in the “people development” departments of large and small PE companies across the globe to trigger high-impact organizational growth.