Private equity is the most important asset class in executive search this year, and it’s probably not close.

While overall executive search volume fell 43% in Q4 2022 from its peak in Q1, private equity only fell 37% during that time frame and had, by Q4, leveled off. Combine the slower, more linear decline with the fact that PE is sitting on record amounts of capital and you’ve got the makings of a market that’s ripe for activity.

It likely won’t be the type of frenzied market we saw in 2021, but Q4—which showed 4% quarter over quarter growth for PE deal value, according to Pitchbook—could be an early signal of what that activity may look like.

If it is, you can expect activity to pick up. Here are two pieces of information you need to know.

Private Equity’s H2 Activity May Offer Pipelining Clues

Private Equity didn’t have quite the hiring spree that VC had last year, so the “hiring crash” story isn’t as strong.

In fact, most of that “crash” happened in the first half of the year, with search volume roughly normalizing in Q3 and Q4. And that normalization? H2 2023 saw a 43% increase in search volume compared to H2 2020. That smooths out to 20% compound annual growth rate. Hard to see coming off the highs of 2021, but important to note.

There are, too, signs of traction within the asset class: CEO and President roles grew both quarter over quarter and year over year in PE, suggesting a new leadership type is needed in this market. 

Perhaps for the same reason, Marketing and Sales roles were up within PE quarter over quarter, as well. Compared to VC, that’s a huge outlier. It may suggest that PE’s more conservative nature is allowing them to continue to invest—and doing so with more deliberate, high-fit placements—at a time when others are pulling back.

If this trend continues, expect to be asked for slates of capital efficient GTM leaders, especially those who have grown through difficult markets or in resource-constrained manners.

How Deals Get Done May Look Different. Will it Impact Comp?

In their 2023 outlook, PWC noted that PE is sitting on more than $1 trillion in dry power—a record level—and that, because of the amount available, there will likely be more creative deployment as valuations reach a middle ground and/or inflation settles.

From that outlook:

“Which deals will get done? A major theme will be public-to-private deals and carve-outs as market valuations continue to drop and corporates look to streamline their portfolios. We also expect to see continued focus on diversification from traditional PE to other asset classes spanning credit, infrastructure, real estate, impact and others — with potential for some investors to incorporate multiple investment strategies on a single deal. Traditional LBOs will continue — particularly in the middle market — though we expect their dominance to wane.

How will deals get done? We’re already seeing novel strategies to deploy capital despite the financing crunch. Examples include minority deals (typically not requiring refinancing), all-equity deals (which avoid the debt issue entirely) and private placement of debt (to bypass the more challenging syndicated markets). These strategies will support continued capital deployment as funds await more general market normalization.”

Given the dynamics at play and the timing of these deals, we may see comp adjustments in this asset class. 

Consider: Compensation was up 10% YoY in 2022 for PE, but reported comp is often a lagging indicator of where the market is at. By Q4, comp was basically flat YoY.

If we see a heightened level of take privates get done, for instance, there’s a prevailing belief this will happen in the mid market. Could lower valuations and a quarter or two of lower market rates be a catalyst for keeping comps down? 

It’s a question to consider and an answer to keep a pulse on, as it will help inform the right candidates for the right roles. 

As we enter a more active market, building a deeper PE pipeline should be a priority. Getting that built with the right talent for current—and future market—conditions will create a healthier slate when the time comes.