On the face of it, recruitment of a senior private equity professional follows a similar pattern to a junior hire: choose a search firm; set the criteria; draw up a shortlist; select your preferred candidate; negotiate a package and fix a start date.  If only it was that simple.

Firstly, let’s consider why the need exists. At junior levels, the recruitment is often triggered by the need for more execution resource. In the case of senior hires, the need is usually to add something new: a sector capability; geographic coverage; greater exposure to strategic relationships or enhance the team ahead of a fundraising.  And it can’t be filled by the preferred route of promotion from within which rewards performance, builds loyalty and re-enforces the firm’s culture or DNA.

The perceived risks of bringing someone in at senior level are high.  Senior appointments come in over the heads of mid level colleagues, risking frustration and resentment. The harshest judges of your new partner will often be those below them in the hierarchy. Making clear what the deliverables are for the new hire can help – but don’t set them up to fail.   

What can you do in the search process to get it as right as possible?

Finding the person with the right experience who will fit in is a subtle and complicated process.  It is worth investing time with your search partner to identify the core need that you are aiming to meet. Ask yourself the question - what should our new partner have delivered in their first twelve months and then in the first two years for us to know we made the right choice?  This will identify the skills and experiences you want to bring into your business.

Then overlay the key cultural criteria that will give the best chance of fit into the team. This will force you to think through and articulate your own culture and values and your search partner can help you with the best tools to test for these intangible qualities. 

Timing and package come next on the list of considerations. Many experienced candidates are established in funds, locked in with contracts and incentives and not actively looking for a new position. What cost are you prepared to bear and how long are you prepared to wait for your new partner to come on board?   More...

It is now almost a year since we opened our office in Munich, headed by Rupert Bell. We would like to use this occasion to give you a brief update on our progress to date, including some of the placements we have made, and our thoughts on the market situation as we approach the final quarter of 2011.

What a difference a year makes....

The last 12 months have seen a pick up in market activity, with even large cap deals finding a match between buyer and seller as well. Direct deal activity has been cautiously growing in the buyout and growth space. Venture deals remain few and far between, though a number of strong exits have added momentum. We have seen considerably more activity in the secondary market, for both fund and direct holdings, as investors trade value for liquidity. Fund of funds strategies continue to attract investor support.

Until recently, debt funding was starting to come back into the market, though we heard mixed views on whether this is driven by more confidence in the economy or by the need for funds to deploy dry powder before the end of investment periods. However, in recent weeks the debt market has drawn back noticeably. Anecdotally, much of the mid sized and larger dealflow in the direct buyout market remains driven by secondary opportunities. More...

Did you know that the Mexican economy has huge potential for private equity.  The fast growing middle class, relative economic stability, international investment polices and taxation programs as well as laws to protect foreign investors means that Mexico is fast catching up with Brazil as the country in which to invest. There is great transparency for investors which significantly increases  confidence.

Similarly, regulatory change in September 2010 allowing pension funds to invest in private equity has already increased the pace of growth. Prior to the change, fundraising tickets were maximum $140m USD.  In 2011’s first trimester we have seen funds of over $220m USD being raised.  I’m thrilled to be in the middle of it at PER’s new office in the heart of Mexico.  To be involved in such a nascent market is exciting and challenging.  And to be able to bring some European expertise into the recruitment and team building puts us right in the heart of the market. More...

2010 was a busy year and 2011 has started well. We’re delighted that more than 100 of our candidates started in new jobs with our clients last year. And this year has started equally well with another eighteen taking up their posts in the New Year.

Our placement split by level has remained consistent with analyst and associates entering into private equity for the first time representing about 60% of our placements and the balance splitting roughly equally between mid level and senior hires.  We’ve seen some trends and also some fashions. The main trend has been towards growing investor relations and fund raising teams. There’s also been a significant shift in skill set for these teams, particularly at the junior and mid level. We used to search for communications professionals. That’s no longer the case with a definite trend towards numerate analysts who can also write good English and have the personality and style to contribute in an IR role. Our shortlists for an entry level IR role now look pretty much like our shortlists for an investment associate.

Fashions: well a strong requirement for Scandinavians came and went as demand was satisfied and Turkish speaking is now in vogue. As ever, associates need to be top ranked to succeed in the competitive recruitment market for private equity irrespective of language skills or cultural background.  Bankers made up 75% of our associate placements with consultants and professional service firm candidates representing only 1:4.  I’m not sure if this ratio will remain for 2011 as bankers, particularly at associate level, are pricing themselves out of the private equity market with big packages.  And whilst our sector continues to be inspirational for many people, the lure of associate packages in the banks may well mean we lose some off our shortlists – perhaps that is what the banks want!  So we may be looking further down the tree at more junior analysts or wider afield at more diverse backgrounds. More...

As we approach the end of the first quarter, we have noticed that M&A advisors are back in action and business is reactivating. Banks are adjusting to the new tax regulations and are dealing with the fact that they lost or let go of many people last year. Now they are recruiting again and are feeling the stress of the shortage of people.

We have seen evidence of this in the significant increase of base salaries, especially for the associate pool. Many banks have readjusted their base salaries to guarantee a minimum fixed income. We were surprised to see increases of 23% to 75% for 1^st year, 2^nd year and 3^rd year associates, respectively.

The bonus range has also increased at this level. Associate bankers are receiving bonuses from 90% up to an unprecedented 230%. Of course the range varies from bank to bank, but the reality is that they are trying to make sure that their associates do not suffer from the new tax regulations and are not only readjusting the base salaries, but also bonuses.

The way bonuses are structured is also changing. We are finding out that some banks are paying partly in cash and partly in long-term stocks at the associate level, which we had previously seen only at more senior levels. The cash component ranged between 65% to 75% and the stocks had a vesting period of 3 to 5 years.

Interestingly, associates acknowledge that they are an asset that is now scarce, especially the good ones. And even though their bonuses were part in stock, they are feeling very pleased about their new compensation levels.   More...

The Financial Times this week www.ft.com has some major comments on the upturn in banking sector recruitment – headlines such as ‘Headhunters set for wave of mandates’ and ‘Goldman bucks trend with hiring spree’ give optimistic messages to would be recruits.  Some commentators believe that the teams were pared back too much and that they will need to re hire.  This all fits in with the trends we have been seeing for star banking analyst and associate level candidates.  But not so much with more experienced professionals.  The demand for experience seems to be at a low. This seems a shame as there is some super experience out there in people who would contemplate a more flexible way of working.  And you could benefit from their skills in a time efficient and cost effective way.

We see experienced investors contemplating a number of opportunities

The least likely outcome for these people seems to be more of the same. And most of the experienced investors we see rarely want more of the same and are looking for a new set of challenges. They consider with relish the prospect of working with an investment house that focuses on smaller deal sizes - it takes them back to what they used to do and why they came into private equity in the first place. You could access their experience in a full time partner role, use their track record in fund raising and strengthen the senior group or use them on a part time or advisory basis.

This serial role route gives you opportunity to access resource on a project by project basis or as an advisor, mentor or investment committee member or to focus on a particular portfolio issue or opportunity.

There is a stunning amount of talent locked up in experienced investors which could be tapped into in so many ways to help your fund be more successful.  And yet so few funds take advantage of it.

I hope the private sector private equity community learns from this and grabs some of this extraordinary talent for itself.  There are some great professionals out there who can make a difference very quickly.

Verbal references can be extremely helpful, particularly if you follow Six Simple Steps.  But first, please ask the candidate’s permission – it can cause a lot of problems if you ‘phone a friend’ who doesn’t know the candidate is considering a new role.  Recruiters can sometimes work around this to get some outline views, but the best source of information will be the current or a recent line manager. A recent line manager is a good way of getting a real feel for the candidate in the workplace without them revealing that they are thinking of leaving. And if you can do this before the final round you can check out any negative comments with other referees and with the candidate and you have a slightly easier get out if the references are not as good as you had hoped.  Post offer referencing can then focus on fact checking and not opinion.

The Six Simple Steps
1.  Timing – take informal verbal references before the last round of interviews
2.  Ask the candidate’s permission to speak to a current or recent line manager 
3.  Describe the job the candidate will be doing for you and the skills needed to be successful
4.  Seek the referee’s opinion on the candidate’s abilities for that job
5.  Discuss the candidate’s strengths
6.  Explore the areas where the candidate would benefit from further development or training

And the reference provides so much more than comfort on whether to make an offer of employment. It can also provide some great pointers on how to manage the new recruit in order to get the best out of them. For example, I recently took a reference on a junior candidate where the referee said the candidate had sound opinions but was sometimes reticent to voice them. Their new manager will now have this in mind and can work to build the candidate’s confidence.

But what about when the reference isn’t as glowing as it might be?   And this is where the timing of the reference taking can really help.  You and the referee are in a potentially tricky position if you have already offered the candidate and they have already resigned or told their current company they are leaving.   Do you tell them you are rescinding the offer because you received a poor reference?  If this is something factual, for example they have misled you about their employment or academic achievements, then your reasons are easy to justify. But if a referee has given an opinion that you don’t like the sound of, what are your options?  The candidate will want to know what was said and by whom, particularly if they have already resigned from their role. Do you tell them?  Do you withdraw the offer with no reason?  You can’t do this if you have already offered the role to them subject to references.  You are about to have some uncomfortable conversations, and we haven’t even started talking about the legal problems related to the giving and taking of references.

Everything is easier if you get the references before offer stage. First of all, you are less time pressured, if you receive some poor comments then you can take more references and check these out – triangulate them with others. You can focus on the areas of concern in your later stage meetings and use probing questions to enable you to make your own judgement on the issue. And if you decide to say no, you are still in your interview rounds so are under no pressure to reveal the details surrounding your decision.

So they maybe Six Simple Steps – but getting the first one right is the key to success.