Private Equity's Calculated Pause: Navigating the Hiring Slowdown Amid Deal Dormancy

As we transition into the latter part of 2023, an unusual trend has emerged within the dynamic world of Private Equity (PE). The sector, celebrated for its steady growth and high-octane deal-making, seems to be pumping the brakes. Hiring and deal initiation have slowed, yet, interestingly, we're not witnessing a significant wave of layoffs. Instead, we're seeing signs of anticipation for a potential hiring boom in the near future, specifically with the most recent on-cycle process having just launched for Associate hiring.

Notably, we're witnessing a significant shift in the PE job market. For the first time since the 2008 financial crisis, we are transitioning from a "candidate's market"—where job seekers had the leverage—to a "firm's market." With fewer positions available, yet a consistent number of candidates in the market, there has been a shift in power as firms have increased leverage throughout the hiring process. This shift presents a new set of challenges and opportunities for both employers and potential employees.

Looking closer, the latest Global Private Markets Fundraising Report emphasizes that overall private market fundraising trends are even lower in the front half of 2023 than throughout the 2022 fiscal year.  However, this slowdown isn't a blanket story of reduced activity. Certain private equity (PE) firms, such as TA Associates, are bucking the trend. Recently, TA Associates made headlines by successfully raising a substantial $16.5 billion fund, as reported by The Wall Street Journal. This significant accomplishment underscores the resilience and adaptability of the PE sector, even in the face of uncertainty and difficult fundraising headwinds. 

Therefore, in expanding upon the initial narrative, a hiring slowdown hints at a more complex issue: a 'valuation chasm.' This term, 'valuation chasm,' refers to a situation where buyers and sellers have differing views on what they consider a fair price for an acquisition. In simpler terms, it's like a tug of war where one side believes the company is worth more than what the other side is willing to pay. This disagreement has led to increased caution in the market, subsequently slowing down the pace of deal-making.

But let's be clear—this doesn't mean the PE industry is on its back foot. Far from it. Reports from Business Insider reveal that PE firms are changing the game, focusing their recruitment efforts on junior bankers earlier in their careers. This forward-thinking approach not only secures a pipeline of promising talent for the future but also underlines the industry's commitment to fostering potential and investing in talent.

So, how should we interpret this hiring slowdown? Far from signaling a decline, it appears to be a strategic recalibration. PE firms are not relinquishing their ambitions. Instead, they're adopting a 'watch and wait' stance. As the market finds its new normal, these firms may prepare to unleash a far more aggressive hiring stance to ensure they have a diversity of talent to continue to be leaders in the industry and best in class at closing deals.

Remember, the PE industry moves in cycles. As market conditions stabilize, we expect to see a revival in deal-making activity, which will spur a hiring resurgence. Historically, PE firms have been at the forefront of economic recovery phases, ready to deploy capital rapidly when the market is right.

The current hiring lull, therefore, shouldn't be misconstrued as a long-term trend. Rather, it reflects a strategic regrouping—a pause to realign deal-making strategies with the evolving market dynamics. We believe firms are preparing for an uptick in recruiting activity that will compliment an expected increase in deal-making.

In the complex landscape of market fluctuations, it's crucial to remember that PE is a marathon, not a sprint. This temporary slowdown in hiring represents a strategic breather, a pit stop before the sector revs up for significant growth. As we move into the second half of the year, the PE industry is poised to regain its momentum, re-energize its hiring efforts, and flex its deal-making muscles, reaffirming its resilience, adaptability, and strength in facing challenges.