What It Takes to Be a Leader in a Private Equity Firm

Those who aspire to lead at the director level and above in the private-equity (PE) industry have no lack of opportunity. Private equity has been on a growth trajectory since the 1980s when very few PE firms existed compared to today’s $4 trillion global sector, according to a 2020 study by Prabhpal Grewal, Charles Hendren, Johan Öberg, Jonathan Croog, Markus Massi, and Maxim Khristenko of Boston Consulting Group (BCG). The authors speculate that “the industry’s success to date is a drop in the bucket compared with what the next ten years could hold.” Despite the growth, experts describe PE leadership roles as among the most competitive in finance and best suited to high achievers.

Top leadership roles in PE include Vice President, Director or Principal, and Managing Director or Partner. An emerging role is that of Leadership Capital Partner (LCP), estimated to be found in 80 percent of large private-equity firms, writes Dan Hawkins, founder and president of Summit Leadership Partners, who explains that the LCP oversees talent and organization performance of the firm’s portfolio companies. “Key attributes of the most impactful private-equity talent executives,” Hawkins notes, “include strong business acumen, a hands-on approach, functional expertise in talent, the ability to partner with company CEOs, and enough confidence and ego to work with investment partners as a peer.”

A consistent thread running through contemporary reporting and commentary on the PE sector is the need to increase diversity in PE firms, given consistent research that shows diverse teams outperform homogeneous teams. Experts note that diversity needs to include not just more ethnic and gender inclusiveness, but also greater varieties of leadership styles. A 2016 study by Financier Worldwide Magazine refers to “cookie cutter leadership teams.” Study authors Richard Thackray and Tom Thackeray, suggest “the bias (conscious or unconscious) that nudges leaders to hire and promote people ‘just like us’ remains strong.” The authors point to the risk that lack of diverse perspectives may result in sub-optimal investment decisions.

As PE firms increasingly recognize that diverse leadership means better performance, opportunity will open up for women leaders in the sector, who are currently in short supply. Just 5.2 percent of private-equity firm board seats are held by women, reports a survey by data provider Preqin. The study also shows women comprise less than 18 percent of private-equity employees globally and just under 10 percent of senior roles. A comprehensive 2019 study, “Moving Toward Gender Balance in Private Equity,” by the International Finance Corporation, reveals only 15 percent of senior investment teams are gender balanced, and nearly 70 percent are all male, despite the fact that “the performance of gender-balanced investment teams is correlated with higher returns.” Blogger Brian DeChesare compares PE firms to “frat houses.”

Preferred Background: Education and Experience

An MBA is valuable (in fact, getting hired right after an undergrad degree is rare), but two to five years of investment-banking experience before or concurrent with the MBA program is critical. While high academic achievement and prestige of the business school (think Harvard, Wharton, Insead, and Stanford) are low priorities to hiring managers in many fields, they are important in private equity.

Experience in investment banking is, by far, the top route to PE leadership, but strategy consulting and accounting can sometimes provide a foothold into the sector, according to the site Askivy, a recruitment and training platform. DeChesare, however, downplays the likelihood of breaking in from a non-investment-banking role, emphasizing that a background that includes transactions is key. He also emphasizes the importance of cultural fit with the PE firm.

Desirable Characteristics

An array of hard skills, soft skills, and personal traits are keys to success in private-equity leadership. DeChesare notes that the higher up the leadership chain an individual progresses, the more important soft skills are, especially skills associated with nurturing relationships.

In addition to the above, readers who seek an insider, “tell it like it is” view of the traits needed in the sector should check out DeChesare’s The Private Equity Career Path: The Complete Guide

Predominant Leadership Styles in Private Equity

As noted above, the PE sector comprises little diversity in leadership styles. The Financier Worldwide Magazine study of 51 managing partners, partners, and principals of European private equity firms revealed the majority of leaders gravitate to just two leadership styles, among the eight styles the study identified – collaborator, energizer, pilot, provider, harmonizer, forecaster, producer, and composer. Two-thirds fell into “forecaster” or “pilot” as their predominant leadership style. Study authors Tom Thackeray and Richard Thackray describe the forecaster style as “anticipatory,” focused on conceptual thinking, and possessing a depth and breadth of knowledge. Those with the pilot style offer strategic vision, the ability to manage complexity and build teams, along with a clear point of view.

Noting that both these styles come with blind spots, the authors also lament that “the least prevalent style is that of the ‘energizer’, a style characterized by the ability to build enthusiasm and inspire buy-in and engagement in others.”