4. Engaging on ESG
One of the best ways private equity firms can tie employee experience directly to purpose is through engagement with increased focus on ESG, sustainability and impact investing. The last two to three years have seen PE firms implement a wide range of measures to better understand and communicate the social impact of their investments.
They’ve hired more professionals focused on ESG. In many cases, they’ve brought in senior roles that report directly to the CEO. In others, they’ve elevated mid-level roles. Blackstone, for example, recruited 12 individuals focused on sustainability in 2021 and plans further expansion in renewable power and real estate. Firms have also improved the economics of hires who specialize in ESG, offering healthy salaries and bonuses and in some cases carried interest in the funds.
Deal teams are increasingly being asked to factor ESG elements into their due diligence, even for deals where it’s not a primary driver of the investment thesis.
And firms are creating new pools of capital — impact funds and others — with a direct focus on managing a double bottom line. Apollo, Blackstone, Carlyle, KKR and TPG all have impact platforms now, whether in the form of dedicated funds or firm- wide strategies. All of these provide potential employees with the ability to connect with value creation that is more than just monetary.
5. Rethinking work-life balance
PE firms, like the rest of Wall Street, have long had a hard- driving culture that emphasizes toughness, long hours, and in-person interactions and training. But the pandemic has caused a rethink and created tensions between the historical way of working and employees’ desire for a healthier work life.
Some changes are relatively uncontroversial. CVC cites the impact of the pandemic on mental health and offers a program that emphasizes nutrition, sleep, exercise and mental health. It says it has found that the pandemic has increased people’s willingness to talk about their mental state, particularly among juniors without families.
When it comes to long hours, PE firms say they have the edge over investment banks, as they can tell recruits that burning the midnight oil is required only when big deals are brewing. Some firms have introduced “finish from home” policies — eat dinner or work out, then log in for a few hours at home instead of staying in the office all night.
PE firms are wrestling with the idea of work-from home/flex-day policies as they try to balance employees’ desires with long-held cultural dictates about face-to-face meetings, teamwork and apprenticeship. “We’re mindful that remoteness is helpful in reducing frictions like commuting, but we’re trying to balance that with how do you mentor and have informal relationships, being part of a team,” says one senior private equity professional.
A number of firms are experimenting with variations on this theme. One firm reported that it has implemented two flex days a week and tracks workload more accurately than it used to, counting how many boards people are on, for instance. Apollo tested two flex days a week in 2021 and allowed employees to work from anywhere for August 2022.¹⁴
Time will tell which firms gain a competitive edge — those that emphasize the teamwork, mentoring and career advancement opportunities that employees can gain in the office, or those that allow employees more control over their work schedules, thereby perhaps attracting better talent.
6. Rethinking engagement
To appeal to a broader range of talent, including diverse employees and younger employees, some PE firms are rethinking their culture, ranging from minor tweaks to new statements of firm principles.
Engagement surveys
Given that younger employees highly value being able to give feedback, some PE firms are collecting employee opinions via formal engagement surveys, aiming to take the pulse of employee sentiment. KKR highlights 90% participation in its annual engagement survey. CVC conducts “culture surveys” to ask people if they feel a sense of belonging and says it has a 94% participation rate. The practice appears to be gaining traction; according to Carlyle Group’s website, it recently completed its first employee engagement survey and is now developing concrete actions shaped by that feedback.
Giving junior employees a voice
Many PE firms pride themselves on their open processes for doing deals, and many are seeking to be more deliberate about giving junior employees a voice. For example, Advent International takes a consensus-driven approach to deal-making, while Riverside Company holds weekly “Meeting of the Minds” events where prospects, deals and current portfolio companies are reviewed and discussed in an open forum where everyone has a voice. Warburg Pincus invites junior dealmakers to its investment committee meetings. Blackstone, meanwhile, has long made a special effort to ask the most junior person in the room for their opinion.¹⁵
Emphasizing the “I” in DEI
Putting in place the resources to retain the diverse employees that firms are working so hard to recruit is a critical area of focus as well. Today, most large PE firms have employee resource groups for URMs. Some firms, such as Warburg Pincus, have also implemented diversity councils. Mentoring is also in focus, and here firms are getting creative. Warburg says it looks outside the firm to senior executives who are part of its network to help guide new URM and female recruits.
One tactic for retaining diverse employees is making sure they are included as deal leaders or voting members of the investment committee. Doing so may also help narrow the gap when it comes to equal promotions and compensation for women and URMs. Institutionalizing and formalizing the way promotion decisions are made can also narrow this gap. One approach to this is mentioned by TPG in its public filings ahead of its IPO: “integrating HR into performance reviews, compensation and promotion discussions to ensure equity and considerations of diversity.”¹⁶
7. Rethinking employee skill sets
Lifelong learning
Lifelong learning is another practice that has long been promoted at many corporations and is now becoming a more important component of PE firms’ toolkits. Many of the largest PE firms now highlight on their website’s opportunities for learning at their firms. KKR says that in 2019 it launched “KKR Avenues,” which offers employees new opportunities for long- and short-term positions across projects, teams and regions. TPG highlights Talks@TPG, which is “hosted by the firm’s senior leadership and [has] a focus on critical diversity, equity and inclusion topics as well as topics such as mental health, work-life balance and building resiliency.”
Upskilling managers
Managers who can provide (and accept) clear feedback and serve as mentors and role models are crucial to helping employees adapt and advance. But PE firms acknowledge that the best dealmakers do not always make the best mentors and managers. They want to change that with training aimed at strengthening managers’ skills.
One firm we spoke to, for example, asked its managers to talk about the best manager they ever had and distilled that information to show what it looks like when a manager is communicating effectively. Another is building a program focused on manager training in partnership with a university. The content will focus on giving and receiving feedback, how to think about manager style, inclusion, managing differences in a team, and change management. It envisions a series of intensive programs lasting two to three days with ongoing training in between.
8. Tone at the top
To enact cultural change always requires the visible support of top executives. This can be as simple as top leaders making public statements about the value of ESG or as complex as changing a firm’s investment statement. In one example, Oaktree in February 2022, added a new investment principle for only the second time in its history — that of responsibility.¹⁷
