By Holden Mann
As private equity continues to evolve in Asia, GPs want to recruit people with a wider array of talents – but industry participants are split on what skills these new hires should focus upon, and where to find them
“There's such a local talent pool pool of people who haven’t spent any time abroad, and that skill set is just as suitable, if not better, for doing PE in China,” explains a 29-year old vice president at a well-known China-focused GP. “For a Chinese American like me, with US experience, it’s not an advantage anymore.”
The vice president, born in China but raised in the US, has seen the PE industry shift around him since joining the Hong Kong office of a pan-regional firm in 2011, where he spent two-and-a half years. Even at that time, despite graduating from the University of Pennsylvania’s Wharton School of Business, it was difficult for the former BlackRock analyst to get a job with an Asian GP without a connection at the firm.
Though he and other Chinese-Americans have found a niche in cross-border deals, he believes it has only gotten harder for other newcomers to follow in his tracks. “To do private equity in China today, if you’re investing in purely domestic companies, there’s very little value in someone with a foreign background,” he says. “It’s different for people I know who have done banking in Hong Kong, or at least banking in China for one of the multinationals, or the big investment banks. But there’s really no point to having worked in New York, or anything like that.”
Experiences like these have fueled a prevailing impression among industry professionals that the growing maturity of private equity in Asia has altered the tastes of recruiters seeking new talent. With the asset class more accepted in Asian markets, the pool of job seekers has grown, the skill sets on offer have expanded, and the experience of GPs has deepened, to the point that some are willing to look outside of the tried-and-true talent groups when recruiting.
The state of recruiting cannot be reduced to a single statement – region, sector and focus play a major role in determining a firm’s hiring priorities. Nor can the practices of firms in other regions be applied to Asia’s unique circumstances. However, the wide range of views among private equity professionals show that the final form of the industry is beyond anyone’s ability to predict.
Emerging trends
In some private equity markets, firms have long welcomed professionals of varying career paths. However, this has not been the case in developing Asia markets such as China and India, where investment banking backgrounds have traditionally dominated among new hires.
This is in large part a product of the relative youth of private equity in these areas – and in some quarters it is already changing, with firms placing greater emphasis on operational capabilities. When the industry was just getting started, though, the pool of talent with previous PE experience was still very small, and investment banking and consulting were believed to provide training in the necessary deal assessment skills.
Srikrishna Dwaram, a partner at India Value Fund Advisors, recalls that when he joined in 2006, many of India’s PE firms had only just begun recruiting seriously for the first time. Dwaram, who had previously worked in internal corporate finance and M&A at commercial banks, was recruited on the belief that his network within the banking industry would be an asset for the firm.
“It was sort of a bandwagon of many of my peer group joining private equity funds. So I jumped on it,” says Dwaram. “We didn’t know much about what private equity was at that point in time, to be honest, but it’s been a good ride.”
In the intervening 10 years that situation has changed, of course; senior positions are now far more likely to go to those with private equity experience. The freewheeling recruitment process has also become increasingly professional and structured, with more formal assessments replacing the personal connections that GPs relied on earlier.
Alice Au, the leader of the private equity practice and co-leader of the Asia board practice at global executive search firm Spencer Stuart, notes that in addition to ensuring all recruits face the same standards, this professionalization can help GPs impress potential investors.
“It’s a very good story to the LPs, that you are actually thinking about how to recruit – ‘Where should I be recruiting the talent, what exactly should we be expecting out of these individuals?’” says Au, whose firm has run training sessions for firms to help them set up their recruitment processes.
“A good private equity person should be half headhunter. They should be able to assess the entrepreneurs or the founder or the business person that they are investing in. But a lot of these guys have not had that experience, so how do you do carry out that assessment, that personal due diligence?”
Ingredients of choice
Many GPs still prefer a background in investment banking or consulting when filling their junior positions. In some cases this preference stems from a desire to protect a culture that has emerged. For instance, of the four founders of Australia’s Pacific Equity Partners (PEP), three were former employees of Bain & Company and one was an investment banker. The GP has actively tried to maintain this balance over the years; currently eight of the 10 managing directors are former Bain employees, and the other two are former investment bankers.
Geoff Hutchinson, a managing director at PEP, says that the benefit of former consultants being hired largely by former consultants is that each party has a familiarity with the other’s experience that would be harder to achieve with recruits from other backgrounds.
“You can say you want to start recruiting from other pools, but it’s not the same if you’re not pulling those people into a culture that knows how to treat them and knows how to get the best out of them, which how our culture has been built up over so many years,” says Hutchinson.
There are exceptions, with Lunar Capital’s Derek Sulger, who founded three companies in China before starting the firm, perhaps most prominent among them. Elaine Wong, co-founder of China’s Hao Capital, also comes from an unconventional background, having majored in chemical engineering and worked as a consultant for the chemical industry before moving into venture capital in the US, and then private equity. However, even in this case, Hao Capital CEO and co-founder Simon Eckersley has a more traditional origin, having previously worked at Goldman Sachs for eight years.
Lunar’s Sulger believes that the dominance of banking and consulting backgrounds among Asian GPs can blind recruiters to the possibilities offered by more diverse experiences.
“If you look at the bios of guys who work for buyout funds in the US you see a lot of guys who ran businesses,” he says. “Of course there are bankers, and many young guys with recently minted MBAs doing financial modeling and engineering, but that is complemented by people who have backgrounds in operations and strategy. This has heavily influenced our operationally-intensive approach and how we have built a team with diverse backgrounds and skill-sets.”
Lunar’s emphasis on operational experience is a reflection of its investment priorities. Unlike many middle-market China GPs, the firm is focused on control transactions, and so has its own operational team ready to go when it takes over a company. Having this ready source of management saves time and resources that would otherwise be taken up by a search.
Australia’s Allegro Funds is another GP that has found it worthwhile to build an operational element into its team. The firm, which has focused entirely on turning around distressed assets since its inception as a consultancy 10 years ago, sees operational and entrepreneurial experience as a major benefit to its plan – even when the recruit’s enterprise was not successful.
“I think that gives someone the empathy and the understanding, and the ability to relate much more to a management team about the strategy and value creation, than someone who’s just been behind a desk, and basically are reeling off an MBA case study, which quite frankly would probably not cut it,” says Chester Moynihan, founding partner at Allegro.
Not everybody agrees on the value of operational experience. An executive at one Chinese GP says he considers it far more likely that a private equity employee will leave PE to start a business, rather than the other way around. PEP’s Hutchinson agrees, saying that while the firm values an entrepreneurial, activist spirit, the way that spirit manifests is important as well.
“It might have been the way that they launched themselves into a not-for-profit activity, or that they thought about how to raise money for a charity and showed ingenuity in that,” he says. “It doesn’t necessarily mean that they were involved in a start-up, or created their own startup. In fact, often I think those sort of people are not really right for us. They typically have a real desire to work for themselves.”
Fund size can also play a role in the types of recruits that are pursued. Larger funds, with more resources available, may be better able to afford to take a chance on hiring a different type of person. A small firm, where resources are more limited, is more likely to require its staff to multi-task; consequently, the firm cannot afford employees who do not have basic experience with sourcing and investing.
A lack of resources can also affect a firm’s ability or desire to train new hires. Spencer Stuart has seen prior deal experience has become increasingly valuable in part because firms are more reluctant to invest in training.
“In the last five years, in all the searches that we have done, the first thing that people will say to us is, ‘We’d like to have somebody who’s done this before,’” says Au. “I have clients who will actually tell me, ‘I do not want to train somebody on our own expense, so that person better have done some direct investing, buy side experience.’”
As previously noted, private equity experience has become easier to find when recruiting for senior positions. But on the junior levels, it is, almost by definition, still hard to come by. Education is one area where firms look to fill the gaps in recruits’ prior training. A candidate’s school can play a major part in a hiring choice, with attendance at more selective schools considered a positive sign. There is a danger to this approach, of course; relying on this kind of shorthand reasoning can come back to haunt a firm if its confidence in a school’s vetting ability turns out to be misplaced.
MBA or no MBA?
An MBA is still considered attractive as well, though there is disagreement about its value. Some headhunters say their clients have relaxed requirements somewhat, with MBAs no longer being required for senior positions. On a junior level, of course, the degree can be a major asset.
Michael Prahl, executive director of the Global Private Equity Initiative at INSEAD Singapore, says that many of the recent students to pass through the program see it as a way to supplement their non-financial background. “What we see among our MBAs in Asia recently, is that aside from the investment banking-to-PE career path, there are a lot of guys with more operating experience, consulting experience, going into the industry,” he explains.
While most professionals believe that an MBA becomes less meaningful as its holder gains practical experience, some caution that this overlooks the benefits of the degree in terms of helping to cultivate a business mindset. Neal Costello – managing director of the secondary investments team at AlpInvest Partners and former head of the firm’s Hong Kong office, and also a director at Columbia Business School – says that many of the benefits of an MBA are not necessarily immediately apparent.
“In this day and age, those entertaining the thought of pursuing further education tend to look for immediate payback on the time and capital invested,” he adds. “This doesn’t always exist with an MBA. I believe that an MBA’s true value becomes evident as one climbs to a senior position – and this can sometimes take time. The emphasis on strategic thinking, the intangible skills acquired and the global network gained make an MBA even more valuable at the management level. A continued emphasis on the MBA is a good thing for individuals and the PE industry as a whole.”
Costello’s point about intangible benefits is echoed by Mounir Guen, founder and CEO of placement agent MVision, who regularly lectures at the London Business School’s Private Equity Masterclass. But in his view, the intangibles required in private equity go beyond what a school or training program can teach. Making a career in private equity requires a candidate to commit to an innovative mindset.
“What I try to do with my students is really shake them up, really make them think hard. Can they step up to the plate, and really take risks?” says Guen. “Because you have to remember, private equity is an environment where you have to work very hard, and you have to work honest. It’s an environment where you must have no fear of standing alone, and so you need to be able to demonstrate a real robustness to risk.”