How do you spot, attract and retain talent in the land of private equity? Out of those three, retention was never much of a consideration. Historically, PE firms have placed less emphasis on the art and science of long-term leadership, focusing instead on driving growth strategies and planning exits. Value creation has typically come from setting aggressive short-term targets and incentivising those executing and managing the changes with substantial financial rewards
But now that environment has changed. Financial engineering alone no longer guarantees superior investor returns. Gone are the days when investors could simply acquire an undervalued asset, leverage it with debt and ramp up the pressure. This is down to four key changes to the landscape, as identified by Harvard Business Review (HBR):
- Declining attractive targets and $2 trillion in “dry powder” are driving up prices for private equity (PE) firms. This has weakened the advantage that financial engineering has historically provided.
- Rising interest rates make debt capital more expensive, forcing PE-owned companies to improve operations and increase the asset’s value through performance. Another deal choker is government debt (set to rise, in 2025, to 85% of GDP in OECD countries) which may create long-term fiscal uncertainty and reduce business confidence. This puts further upward pressure on interest rates and strangles economic growth all driving a smaller appetite to merge or acquire.
- It’s noted that 70% of 2022 PE deals were “platform” or “roll-up” plays, combining smaller companies. This trend in deal formation demands exceptional leadership, as smaller companies often lack management strength and talent-management capabilities.
- Partly due to the trend of “stitching” companies together, PE firms are typically holding companies longer, aiming for seven years instead of five, and this requires real long-term investment in operational excellence and the leadership team.
The leadership gap
Despite recognising leadership as the most important lever for value creation (70% of PE executives cite it as more critical than operational efficiency), the industry still suffers from a widespread leadership gap. A striking 75% of CEOs leave after a PE acquisition, often not by design. Over half of these CEO departures are unplanned, causing disruptions that extend hold times and reduce returns.
Other C-suite roles fare no better. CFO turnover is even more pronounced, and broader executive instability undermines the continuity required to execute multi-year transformations.
The unique challenges of PE leadership
Leadership within PE-backed companies, or portcos, is uniquely challenging. The pressure is not from quarterly earnings reports, as in public companies, but from the looming deadline of a profitable exit. This “countdown clock” creates urgency, but also discourages long-term investment in soft skills, culture, and human capital infrastructure.
Several unique leadership challenges in PE settings include:
- Short timeframes: leaders must create impact quickly, often with limited resources.
- Misaligned expectations: PE investors value traits like agility, resilience, and speed, while portco executives prioritise collaboration, team building, and cultural cohesion.
- Lack of HR maturity: carve-outs and roll-ups often lack robust HR systems, making it hard to recruit, develop, and retain talent.
- Investor-operator tension: the hands-on nature of PE oversight can cause friction, especially when investors micromanage or undervalue human capital investments.
A change for good
To bridge the leadership gap, HBR recommends a practical roadmap for change at three levels: the PE firm, the portfolio company, and the deal itself.
At the PE firm level:
Hire a human capital partner
Top PE firms are now hiring talent leaders to assess, support, and develop leadership within their portfolios. These professionals should be elevated to senior leadership roles with a wide mandate: improving hiring, diversity, succession planning, and executive coaching across the portfolio.
Create a leadership playbook
Standardise leadership-related processes including: talent assessment and recruitment, leadership development and succession planning and performance management and incentives.
These tools can help firms view their owners as partners in growth rather than overbearing bosses.
Foster peer-to-peer learning
Hold forums, webinars, and leadership development events to build a sense of community and shared learning among portco executives.
At the portco level:
Develop a leadership agenda
Portcos should treat leadership as a strategic asset. This involves:
- Defining what leadership capabilities are required for future value creation
- Setting tangible goals for employee engagement, retention, and culture
- Building the HR function from transactional to strategic
Measure what matters
Include leadership KPIs in investor reports. Link talent initiatives to ESG metrics where possible. This will help legitimise human capital investments in a cost-sensitive environment.
At the deal level:
Embed leadership in the deal thesis
PE firms must identify what kind of leadership is required to deliver on their investment rationale: whether it’s growth, turnaround, or integration. Different scenarios call for different types of executives.
Include leadership in due diligence
Assess not just top leadership but also high-potential middle managers. Identify culture risks, morale issues, and turnover trends early to avoid surprises.
Start strong post-acquisition
During the first 100 days, define key roles, identify A-players, and implement leadership metrics. Don’t delay leadership planning.
The bottom line? Talent is king.
The message is clear: leadership quality has become the single most important variable in driving PE returns. Financial engineering will always play a role, but its relative importance is waning. The firms that win going forward will be those that learn not just how to buy companies, but how to build leadership within them.
This new model requires structure, investment, and a cultural shift. It calls for treating leadership development with the same rigour as financial modelling. The payoff? Stronger returns, faster exits, and higher valuations.
So it’s time for PE firms to stop treating leadership as a nice-to-have and start treating it as a core asset.
At the Siena Partnership, we work with our clients to recruit PE leaders both into portcos and funds themselves to help their organisations innovate and deliver value creation.
If you’d like to continue the conversation with one of our PE experts, Jake, contact him here: Jake Bush