Asian PE firms risk losing talent to global peers

Asian private equity managers must do more to retain key staff or face closure, says Michael Di Cicco of search firm Heidrick & Struggles, citing new research on industry compensation.
Asian PE firms risk losing talent to global peers

The private equity industry in Asia Pacific may be growing fast, but general partners in the region face a large and growing issue, finds a new report from search firm Heidrick & Struggles: that of succession planning.

Generational change is a concern for PE globally, but home-grown Asia-Pacific firms face the biggest challenge on this front, said Michael Di Cicco, Asia-Pacific head of private equity at Heidrick. If they don’t address it, they could lose key executives and face closure or consolidation, he told AsianInvestor.

Only 28% of respondents from global GPs and 40% of those from regional players said they had a succession plan in place in Asia at partner, managing partner or managing director level (see first figure below). And the situation doesn’t appear much better in respect of less senior employees.

This is a very surprising situation and needs to be dealt with, Di Cicco told AsianInvestor. “When you talk to some of the founders of these firms in Asia, there tends to be a big gap [in terms of experience] between the senior managing partners with a lot of equity in the fund and the next level [of executive].”

Even the largest, most successful global PE managers are having to deal with this, but the problem is more acute for Asian GPs because the home-grown industry is newer, so the talent pool is smaller, noted Singapore-based Di Cicco.

Another issue at regional firms – many of which are run by small groups of people – is that the junior staff often hit a glass ceiling, he said. “They maybe don’t fee they are getting the equity in the business that they want, so they move on.”

In light of the relative dearth of PE experience in Asia, global GPs will quickly pounce on such talent, said Di Cicco. Moreover, while having on-the-ground, established staff in the region is preferable, the international firms at least have the option of bringing in experience from their business outside the region.

It may be something of a vicious circle for Asian PE firms, which are not as diverse in terms of strategies as their global peers, added Di Cicco. Their main strategy may be tightly controlled by a few senior executives, meaning there are less likely to be people who can step up if the leaders retire or move on.

And those GPs lacking a suitable talent pool will be vulnerable to consolidation or unable to raise future funds over time.

This is an issue that the regional fund managers need to address, either by offering equity stakes in the platform or more transparency around compensation, said Di Cicco. “They need to make sure the next layer of senior management feels sufficiently vested in the platform to stay on.”

“If that doesn’t happen, you will not be able to raise more funds no matter how successful you’ve been if the heads of your business or team retire and can’t be replaced with a strong successor,” he noted. That could potentially lead to the fund being wound down or consolidated into another business.

At least regional GPs are able to compete head-on for talent, because they now offer compensation on par with global firms, noted the survey.

PE base salaries and bonuses in the region continued their steady climb last year, with 62% of respondents expecting base salaries to rise in 2016 (see figure, right). The most pronounced rise in remuneration was for junior deal-execution professionals. This comes on the back of Asia-Pacific deal value rising by 44% to a record $125 billion last year, from $87 billion in 2014, according to an April report from PE giant Bain & Company.

The Heidrick survey also indicated continued growth in the number and size of control transactions, fuelling an increased focus on value creation and the recruitment of operating professionals.

*The report surveyed 225 individuals across six markets: Australia, China, Hong Kong, India, Japan and Singapore. 

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