It's getting more difficult to land a job in the private equity industry -- unless you are willing to join a smaller firm.
Buyout firms specializing in small deals are braving a slowdown in hiring for dealmakers, as they skirt the financing and fundraising challenges hampering large leveraged buyouts, dealmakers and recruiters say.
This is giving the small firms rich pickings for talent that traditionally snubbed them for more lucrative careers at bigger peers.
"The resumes that I'm seeing -- and the quality of them -- are better than what I've seen in a long time," said Robert Covington, managing partner of Braemont Capital Management LLC, a Dallas-based private equity firm that earlier this year raised its first fund, amassing $525 million.
"It used to be really hard to leave one of the bigger firms because of what they are being paid or the opportunity and that's just not there right now," said Covington, who was previously co-managing partner at RedBird Capital Partners Management LLC, a much larger private equity firm with $8.6 billion in capital under management. Braemont, which employs 11 people, plans to hire three more by the end of the year.
Industrywide data comparing hiring at large versus small private equity firms is not available, but some surveys conducted by executive headhunters show this trend.
Out of 15 U.S. private equity firms surveyed by New York-based recruiting firm Eastward Partners, 12 reported hiring had fallen in the six months to the end of May. Two of the firms where hiring picked up over the same period were smaller, with less than $1 billion in assets.
Matthew Simon who last year left Ardian, a private equity firm that oversees $150 billion in assets, for Gamut Capital Management, which manages over $2 billion, says he sees faster professional and personal growth at a small firm.
"Working with the senior most leaders of our firm on a daily basis, all good ideas are heard and decisions are made quickly, so there’s increased responsibility and ownership," Simon said.
The current deal financing environment is also making life easier for smaller private equity firms, industry insiders say. They need less debt for their acquisitions, which has become more expensive and scarcer amid a spike in interest rates and concerns about an economic slowdown.
"A smaller deal is less likely to be dependent on debt financing and there's less friction on getting those transactions to the finish line," said Brian Gray, a Toronto-based partner at law firm Osler, Hoskin & Harcourt LLP.
"There (are) lots of sub-$100 million dollar transactions that are ongoing."
U.S. private equity deals worth less than $5 billion fell by 45% to $119.2 billion year-to-date, according to Dealogic data. Private equity deals worth more than $5 billion, meanwhile, fell by 63% to $94.3 billion.
As risk-averse investors scale back their commitments, raising a private equity fund is also easier when it is smaller. North American firms seeking $5 billion or more raised $305.8 billion in the 12 months to the end of June, while funds raising under $5 billion amassed $403.2 billion over the same period, according to Refinitiv data.
Richard Kunzer, a co-founder at New York-based private equity firm Integrum, which raised $1.1 billion for its inaugural fund in May, said while fundraising is never easy, investors were more willing to back smaller firms because middle market deals are often less dependent on using high levels of leverage.
"In three of the four portfolio companies we have, we don't have any leverage in the deals," Kuzner said. His 22-person firm added five new team members in 2023.
BIGGER FISH IN SMALLER POND
To be sure, joining a private equity firm can be less financially rewarding.
The average compensation of a managing director at a private equity firm with assets under $1 billion is $462,000, compared to $915,500 for that of an executive at a private equity firm with assets between $5 billion and $10 billion, according to the most recent compensation report by Heidrick & Struggles.
But that is just one of the considerations, private equity insiders say. A smaller firm can offer shorter paths to more senior roles. Small firms are also spread out across big North American cities, rather than being concentrated in New York.
The major private equity firms are also setting the bar higher for the few positions that they offer. Blackstone Inc Chief Executive Stephen Schwarzman told analysts on the firm's quarterly earnings call last week that only 169 out of 62,000 applicants got entry-level jobs with the New York-based firm this year, making it 12 times as hard to get in than Harvard University.
John Rubinetti, a partner at executive search firm Heidrick & Struggles' New York office, said the smaller firms were reaping the rewards of some of the challenges that bigger firms face.
"I see that more hiring is happening at smaller firms," he said. "They are now taking advantage of the market being more favorable to make new hires, where they were overshadowed by larger groups in previous years."
(Reporting by Maiya Keidan in Toronto Editing by Greg Roumeliotis and Chizu Nomiyama)