Avocado toast and carry

"No one wants to work anymore.” (Various newspapers from 1894, 1905, 1916, 1922, 1937, 1940, 1952, 1969, 1979, 1981, 1999, 2006, 2014 and 2022, as verified by Snopes.)

Growing a private equity house to outlast the ages is not simply about retaining who is already there. It requires getting the next generation – at this point in time Millennials and Gen Z – through the door.

“Millennials have grown up in an age of accelerated technological advancement, global connectivity and unparalleled choice, and are also the first generation to be financially worse off than their parents. They have lived through the global crisis in 9/11, the GFC and now Covid-19, and are facing an unstable and uncertain future,” reads the introduction of a paper published by YSC Consulting.

The good news, as per the same paper, is that private equity remains an attractive industry. Its entrepreneurial nature, access to management teams, the intellectual challenge, breadth of sector exposure, prestige and the satisfaction derived from growing companies are cited as key attraction points.

While Gen Z are still getting their university degrees, we spoke to the Millennials of private equity to find out their personal motivations on joining the industry. Lucy Merson, associate director at Connection Capital, concurs: “My role allows me to take a long-term view to entrepreneurship, fits my detailed-oriented nature but still offers a wide variety of challenges as I am not simply focused on improving one business.”

The kids aren’t alright

As the industry falls increasingly into the public eye, more potential candidates become aware of it as a career destination. Correspondingly, universities have launched business programmes specifically for private equity and venture capital. But overall, the representation is still problematic.

“During my student years, private equity was often portrayed as primarily driven by financial metrics, often at the expense of ethical considerations,” says Caroline Truong, impact investment specialist at Lightrock. “I rarely got the impression that there was a broader, more impactful dimension to it, where financial returns could take a back seat to fostering positive change and ensuring sustainable, long-term economic growth. This perspective gradually shifted as I became more deeply involved in the field, particularly through my exposure to impact investing and my role at Lightrock.”

The possibility to enact positive change is a key motivator for Millennials and Gen Z. Deloitte’s Gen Z and Millennial Survey from 2023 lists cost of living as the top concern for both generations, at 35% and 42% respectively, followed by climate change for Millennials.

And private equity firms are seeing this play out in real time, as one CFO shares their experience of losing out on a promising hire as the competitor offered a whopping 10k more in yearly compensation. To increase their attractiveness, some GPs have extended their carry scheme to more functions and lower levels of seniority.

But with climate change and its effects constituting an inevitability, cash and carry are not all.

In conversation, Truong shares her personal motivations for joining the industry: “I’ve always been a values-driven person and whenever possible made my professional choices on the basis of alignment with my core beliefs. My role at Lightrock allows me to combine my passion for sustainability, entrepreneurship and development, and practise it daily through my work.”

While Merson says: “The process of selecting and pitching assets to the investment committee not only allows me to bring forward businesses which suit our strategy. We also discuss each investment in a roundtable, which gives me the opportunity to voice my opinion on any investment we consider making, and to champion those that represent causes I am passionate about.”

Struggles for talent persist across multiple industries but private equity is in a unique position. It has the ability to directly address the concerns of the next generation.

Carry or not, financial compensation in PE is high and eases individuals’ concerns about the cost-of-living crisis. By taking action on their ESG commitments, particularly through impact-oriented strategies, firms can show potential candidates that in the course of their role they can actively do their part to contribute to humanity’s navigation of climate change.

Brian Mason, group CTO at BC Partners, wholeheartedly agrees: “Private equity offers you the chance to commit for the long run and make a direct impact on whatever you are passionate about.”

Third on the list of Millennials’ concerns is unemployment. As headlines with variations on ‘the easy money days are over’ circulate, we ask Truong whether she is concerned: “Increasing scrutiny and macroeconomic uncertainty pose challenges but I have also experienced them as an unique opportunity. In this evolving landscape, the growing need for a more diverse range of skills and backgrounds has opened more avenues into the industry. As someone who initially studied international affairs and governance with a focus on sustainability, I've found a space within the private equity sector where my values and aspirations align.”

But one young investment professional we spoke to is less optimistic, as they share a worry about ever-increasing competition, with LP capital becoming less accessible.

In an act of reassurance, a seasoned PE professional likens working in the industry to a marathon. While other financial institutions may have high churn, the industry’s tendency towards lean teams creates the need for strategic hiring and a stronger commitment towards the employee.

“To me, empowering my team is fundamental,” concludes Mason. “Regardless of generation and function, we all want to thrive in the workplace. This requires a comfortable and safe environment where mistakes are allowed and learning is encouraged.”

No smoke but mirrors

Both Gen Z and Millennials have been stamped as committed to combining their professional life with their personal values. But they are not entirely alone in that. “Listening to your staff’s needs and wants is part of being a good employer,” says BC Partners’ Mason, who is highly involved in hiring for the firm’s tech capabilities. “We spend a lot of time in the office and I want to live the same values there as I do at home. In my view, this desire is not a new one, however the conversation around it has become more widespread.”

While climate change is important to them, it’s not just about the ‘E’. “The importance of a diverse workplace and active initiatives for DEI cannot be understated in my view,” says Truong. “I was glad to find out that Lightrock lives this, with a nearly 50-50 split across male and female staff.”

“As a woman in private equity, female representation is obviously incredibly important to me,” agrees Merson. “But it goes further than that. For example, being upfront about your parental leave policies.”

A truly diverse workplace goes arguably even further. As firms hope to pluck ripening talent from educational institutions’ trees and spread it on their payrolls, they have geared up their public outreach, for example through internships. “These schemes introduce another form of D&I conflict,” warns one industry member close to several firms. “They often run a couple of months in the City, on an unpaid basis. Only a certain type of social class can afford to sustain housing for the timeframe and work for no compensation.”

At the bottom line, the answer to the talent question is as varied and individual as the people it concerns. But CFOs worrying about whose hands to leave their legacy in, can take solace from the fact the struggle is not a new one and has been publicly discussed for 130 years.

More than that, private equity’s core characteristics offer solutions to the concerns of its next generation. It becomes a matter of demonstrating that the values Millenials and Gen Z hold do not only belong in private equity, there is room for their active expression in a variety of ways. More than making a living, the industry allows potential candidates to address wider concerns for the future. If firms can demonstrate this, they are likely to fare much better in the talent wars than many others.