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Big pension funds are scooping up private equity professionals seeking refuge from a downturn in the sector that has restricted the carried interest payments that traditionally made up most of their pay.
Professionals from mid-market buyout groups, in particular, have been flooding pension plan recruiters with their résumés in a bid to escape the private equity fundraising squeeze.
“We are finding it easier to attract talent — not super easy, but much easier than three or four years ago,” said Ralph Berg, chief investment officer at the Ontario pension fund Omers.
“I suspect a lot of the private equity firms are struggling to hold on to people or maybe they want to manage . . . headcounts too.”
British Columbia Investment Management Corporation, which manages assets for public sector pensions, hired about 20 people in the past two years from buyout firms due to “fundraising issues” at those groups, a person familiar with the matter said. BCI’s private equity team has 70 people in total, according to its website.
The experience of the Canadian pension plans is the latest sign of how a prolonged downturn, initially ushered in by 2022 interest rate increases, is rippling through the financial sector.
The higher cost of borrowing hampered dealmaking and left firms with less cash to return to their institutional backers. This in turn reduced how much money those backers could recycle into new buyout funds.
Private equity groups raised just $592bn in the 12 months to June, their lowest tally for seven years, data from Preqin shows.
Tougher fundraising has led to lower revenue streams for buyout firms from management fees, leaving them with less cash to hire talent. Smaller firms have struggled the most with fundraising as buyout fund backers have flocked to larger groups which are seen as more reliable.
Berg of Omers said that the red hot mergers and acquisitions market in 2021 had made that a tough year for pension funds to retain staff.
But the more subdued dealmaking environment that has endured since meant that “people — especially juniors — have seen that there [have] been fewer deals to work on”, Berg said, adding that “they fundamentally worry that they are not . . . building up their CVs”.
“All of a sudden,” he added, “those employers that have their own capital and don’t depend on fundraising in order to make new investments and have more sustainable [compensation] structures with a higher level of predictability now look attractive.”
BCI declined to comment.