PE recruitment: when is the right time?

The people pages of EVCJ have been crammed over the last year, with firms recruiting in anticipation of and following new fund raisings. Bowmark Capital is one of the latest on a recruitment drive looking to appoint junior level professionals to train up before the firm goes on to raise its first fund since independence in a few years’ time. This will give the new members time to get embedded in the team before the new fund gets off the ground and seems to be a popular strategy for most firms with the mindset that recruitment in private equity should be a gradual process and not just a mad rush before a fund raising. Angela Sormani reports.

André Jaeggi of fund-of-funds Adveq sees the recruitment process as an ongoing evolution of a firm and something that is totally independent of the fund raising cycle, if anything it can deter investors from committing to a fund because a new recruit, particularly at senior level can change the dynamics of a team and its decision-making process. He says: “The composition of the team, its strengths and its shortcomings are the core element of selection for us as a fund-of-funds manager when making an investment decision. However, recruitment at all levels is always critical in the sense that adding a person around the table in any case changes the dynamics of decision-making within the team. This is independent of the fund raising cycle.”

The main concerns for an LP seem to be when a senior professional is recruited in the run up to a fund raising, rather than a junior candidate. Alexandre Covello of LGT Partners says: “If it’s a senior professional of course we would question the rationale for such a hire and would like to understand how the new recruit will integrate within the team. With the more junior recruits there is not so much concern.”

Thierry Baudon of Central Europe-focused fund Mid Europa Partners agrees: “I don’t think fund raising should drive your recruitment policies and one thing LPs don’t want to see are senior changes prior to fund raising. They want to see stability. The market hates surprises. If you only bring in junior people as a policy then it creates a much more congenial environment within a firm. We only ever hire junior guys and then people go up or out – we don’t have many movements at senior level.”

Essentially, a private equity firm is constantly in fund raising mode. A prime example of laying down solid foundations for a fund raising is by doing co-investments with LPs. That way, they see how the firm works, they get involved in the due diligence and so get to know the way the team operates. Baudon says: “By inviting your LPs as your co-investor you effectively do your fund raising as you work.”

Bowmark Capital, formerly Sagitta Private Equity, which gained independence in 2004, raised £105m for its most recent fund in February that year. In the May following that fund raising, the firm recruited Duncan Calam as a director to help invest that fund. Calam had over eight years of private equity investment experience with Bridgepoint, latterly as a director in its London office. At the same time, it recruited Toby Wyles as a non-executive director, who had over 13 years’ experience with Apax, latterly as a senior equity partner and co-head of the European buyout group. And more recently, in March 2005, Mike Simmonds joined as a director with six years of private equity investment experience in the mid-market with LDC, in London and Reading.

Charles Ind, who set up Sagitta Private Equity in 1997 and has over 18 years’ investment experience, says: “We closed our third fund in February 2004 and recruited a couple of months after that close. And so, when we go out to raise Fund IV, we will be able to show that those recruits have been an integral part of the team for most of the investment period of Fund III. You basically want to think a fund in advance in planning your recruitment strategy, to give sufficient time for the new recruits to settle into the team and to achieve continuity in the track record and we believe that is the best way to build a business. And it means we are arguably over-resourced for the amount of capital we manage.”

ECI Partners has also been on a steady recruitment drive. Having closed its last fund, ECI8, in April last year on £255m, the firm recently announced the appointment of Tom Wrenn as investment executive from the private equity team at Close Brothers Corporate Finance taking a wide-ranging role across all aspects of ECI’s investment activities including deal origination, execution, transformation and exit. And the year before ECI8 was launched the firm appointed Charlie Johnstone as business development manager from Ernst & Young in London, where he spent seven years, his last year in corporate restructuring, focusing on business development with private equity firms.

Also following a similar recruitment pattern, the year before its mega €6bn fund raising got off the ground for CVC European Equity Partners IV, CVC took another director on board its international team in London. Hugh Briggs joined from MidOcean Partners (formerly DB Capital) where he worked on a wide range of private equity deals.

What an LP is mainly looking for when doing due diligence to invest in a fund is two things. Firstly, LPs are looking for continuity of track record and want to know that the team being used to sell the new fund is the same as the one that got results in the past. Secondly, an investor wants to see good team dynamics and harmony within the team. Sagitta’s Ind says: “LPs want to see evolution within a team, rather than revolution. They don’t want to see a bunch of people they don’t know investing their capital, and rightly so. That’s why we are building our team gradually and giving our new recruits the chance to bed down – the more you can do that, the better. Right now, we have six senior executives between the ages of 35 and 45, and we are in the process of recruiting the level of management beneath them. That’s how far in advance we’re thinking about succession.”