Market Hit With Rash Of Layoffs

For all the criticism they get for eliminating jobs, buyout shops have rarely fired their own. Now that’s changing, thanks to a slowdown in both deal-making and fundraising that shows no signs of reversing.

So far, the layoffs have been relegated to the bigger firms, ones with headcounts in the hundreds, The Carlyle Group being the most prominent example. The Washington, D.C.-based bastion of the buyouts business, which has more than $90 billion in assets under management, is eliminating 10 percent of its workforce, roughly 100 positions, citing market conditions. The move follows recent pullbacks by the firm abroad. In late November, Carlyle closed a 10-person office in Warsaw that served as its presence in central and eastern Europe and also shut down its Asia leveraged finance business, letting go six staffers.

Publicly-traded business development companies American Capital Ltd. and Allied Capital Ltd. have also made significant cuts. American Capital disclosed plans to cut nearly 20 percent of its workforce in the United States and Europe, shedding about 110 positions and closing two offices, on Dec. 2. The Bethesda, Md., firm, which has $17.6 billion in capital resources under management, also blamed current market and economic conditions and a corresponding slowdown in its own investment activity for the moves.

Allied Capital has reduced its workforce by around 26 percent in 2008, including 19 employees who were laid off several weeks ago, according to a source familiar with the situation. The firm’s current headcount is now around 136 employees. The source confirmed that Allied Capital has closed offices in both Chicago and Los Angeles, but the Washington, D.C.-based firm still has a staff of 20 in New York. Buyouts estimates there are roughly 10,000 investment professionals at U.S.-based buyout firms.

The fallout so far can be seen as indicative of the maturation of the buyout business. The 20 or so mega-buyout firms around the world are now operating “like real companies”, as one observer put it, and thus they are subject to some of the same broad market forces. “The top firms have turned a corner,” is how Brian Korb, a partner with Glocap, a New York-based executive recruitment firm, described the situation. “To see cuts from within that group isn’t shocking. Once a firm gets above 50-to-100 people [in staff size], they’re probably pretty diversified. When the market turns like this, some strategies or offices just won’t do well.”

“You could argue that these layoffs may signal a new era for the industry,” added Korb. “The big firms had been hiring for the future. It may be a while before they feel confident enough to do that again.”

Whether cutbacks spread to the rest of the private equity industry is the logical next question. Mark Jones, a partner with Chattanooga, Tenn.-based River Associates Investments LLC, acknowledges the possibility that the staffing in the middle market could be eventually affected, especially if macro conditions continue to worsen, but he believes more deliberate hiring practices at that level should keep layoffs in check. “They [smaller shops] bring people in based on need,” he said. “It’s not a ‘build it and they will come’ strategy.”

Solveigh Marcks, managing director with New York-based executive recruiter The Denali Group, agreed. Her firm, which specializes in the financial services industry, has seen clients take more of a wait-and-see attitude of late but she believes there is still enough action in the middle market to insulate most shops. “It’s disappointing,” she said, of the layoffs at The Carlyle Group, “but it’s less likely to happen in the middle market. Firms are being much more cautious, given the environment, but there is still hiring going on. There’s always demand on the junior side. Niche expertise, certain specialized areas like distressed debt for instance, are still getting attention.”