Reopening continues to fuel expectations of an earnings recovery, evidenced by public market multiples and the boom in IPO issuances. This backlog stems from decades of private capital enabling companies to remain private longer. The world’s largest institutional investors have demonstrated a growing commitment to private equity, creating a virtuous capital flow with the power to transform companies and fuel recovery.
Private equity deal upsizing continues. As a byproduct of success, private equity allocators have witnessed growing fund sizes and subsequent deal sizes. The ethos is to go big and global or diversify via smaller GPs. The battle looming on the horizon of the private equity universe is the race for talent between burgeoning incumbents and new competitors forming as teams spin out.
Commitments to private funds by investors are on pace for a record-breaking 2021 to exceed $1.3 trillion, according to JP Morgan, when annualizing August 2021 year-to-date across private equity, infrastructure, private credit and real estate private funds. The 2019 peak of $1.2 trillion dipped by 10% in 2020 before regaining momentum at its year-end. The PE trademark of proactively managed ownership has served LPs well in mitigating agency risk as well as making it one of the highest performing asset classes at over 14% annually (2011-2020 Burgiss/JP Morgan).
The battle for talent. After a year of reduced hiring, the contest for talent has resumed. Unfortunately, timing is colliding with accelerating financial industry resignations. We are witnessing a flattening of available talent starting to cause considerable strain and ample choices for great dealmakers between deploying as intrapreneurs, innovators inside large organizations, and the entrepreneurs, writing a new script in the industry, spinning out with Fund I.
Resignations are the result of a growing expectations gap with employees, many of whom are in search of a mission and a purpose. Leaders are taking a fresh look at the talent equation and finding many new channels ripe for talent identification. This is coincident with an increasingly open dialogue around retention to ensure inclusion and to increase trust and team alignment.
For the private equity industry to continue the double-digit growth trajectory of the last decade, talent expansion must occur in lockstep. The nature of the business transformation inherent with successful strategies is a boots-on-the-ground engagement between boards, change agents and management. In the most sought-after control-focused private strategies, further capacity available for institutional investors will be constrained by the talent pool of dealmakers we are currently developing.