Private Equity Talent Management in Emerging Markets Survey
EMPEA’s Private Equity Talent Management in Emerging Markets Survey aims to provide our members and the broader industry with a greater understanding of the current state of hiring for employment at private equity firms; the challenges that GPs face in staffing their emerging market teams; and, how practitioners anticipate the job market will evolve over the next five years. The findings of this Survey are based on data collected from 88 respondents representing 70 private equity fund managers based in 34 countries and operating across the emerging markets, as well as interviews with industry professionals.
Key findings include:
1 – Competition for Talent: Competition for qualified talent at private equity firms is expected to intensify in most emerging markets over the next five years, especially in Sub-Saharan Africa and Emerging Asia. Approximately 75% of Survey respondents operating in Sub-Saharan Africa and Emerging Asia anticipate competition for qualified talent at private equity firms will intensify in those regions. Respondents in most emerging markets consider local private equity firms to be their most direct competitors for talent, followed closely by global private equity firms.
2 – Talent Acquisition:Compensation negotiations are seen as the biggest obstacle to acquiring qualified talent
in most emerging market regions. In most emerging markets, respondents point to compensation negotiations as the single biggest obstacle to acquiring qualified talent, with several respondents ascribing upward pressure in compensation to competition from large global firms building new local teams. However, in some regions (most notably China), the biggest obstacle to acquiring qualified talent is instead reported to be a lack of candidates with adequate local knowledge.
3 – Turnover: Concerns related to compensation are seen as a key driver of staff turnover. Annual turnover is
highest in India at 21%. Concerns related to compensation—including base compensation, pace of promotion and carried interest—are seen by most respondents as the key drivers of staff turnover at their firms. India leads the emerging markets in terms of turnover, with more than one in five private equity employees leaving in any given year. Annual turnover in Emerging Asia, Brazil and MENA is also higher than the emerging market average of 13%.
4 – Salary Expense:Payroll as a percentage of total operating costs is expected to increase over the next two years in all emerging market regions. Payroll as a percentage of total operating costs is broadlyexpected to rise over the next two years. For Sub-Saharan Africa, nearly 80% of respondents anticipate payroll’s share of total operating costs to increase—the most of any region. Moreover, one-third of respondents operating in India and Emerging Asia anticipate payroll’s share to increase significantly.
5 – Skill Sets:Operational expertise is the skill in shortest supply relative to demand across virtually all emerging markets.
Respondents in almost all regions view operational expertise as the skill in shortest supply relative to demand. Practitioners active in the BRICs report an adequate supply of finance-related skills among recent graduates of MBA programs and candidates with investment banking backgrounds, but they point to a dearth of qualified mid-level and senior candidates who marry knowledge of local markets with operational backgrounds and/ or private equity deal-making experience.
6 – Hiring Channels: Personal references are the most common hiring channel followed by executive search firms. Most private equity firms are satisfied with their experience with executive search firms; those that are not tend to cite the quality of final candidates as the key reason for their dissatisfaction. Personal references account for more than one-third of hiring at a typical respondent’s firm, while roughly 20% of hires are selected through executive search firms. A majority of respondents (76%) use executive search firms, with most reporting satisfaction with their experience. Among those that are dissatisfied, the quality of final candidates is the most cited reason. Among respondents whose firms do not use executive search firms, cost is the primary impediment.
7 – Feeder Schools:Recruitment of MBAs at the entry level is highly concentrated among graduates of Harvard Business School (HBS), Wharton and INSEAD. While most respondents stressed the importance of familiarity with local markets, they tend to source entry-level hires from schools based in developed markets. The most-cited school based in an emerging market (Universidade de São Paulo) ranks sixth behind HBS, Wharton, INSEAD, London Business School (LBS) and Stanford. Recruitment of local graduates is concentrated in Brazil, Sub-Saharan Africa and India.