The Art of Finding Portfolio Company Leadership

While many private equity firms outsource searches for executives to lead their portfolio companies, a growing number have in-house talent for the task. Talent management professionals from LLR Partners and SK Capital Partners discuss how they find the right leaders.

As private equity firms look to differentiate themselves in an increasingly competitive field, one strategy has come to light: bring tasks in-house that were once outsourced.

A growing number of firms have at least one person on staff to scout for leadership and/or board members specifically for their portfolio companies. These in-house talent professionals use their networking skills to identify and assess those executives who align with investment criteria.

At middle-market PE firm LLR Partners, Kristen Chang is the vice president of talent management, tasked with searching for executive-level talent for portfolio companies. She utilizes a variety of strategies for identifying the right executive for companies in the LLR portfolio: targeting specific people through cold or warm introductions for an exploratory conversation; using LinkedIn; using a professional search service if the right talent can’t be found.

“However we can get to somebody,” Chang says. “Cold-calling, we have an 85 percent to 90 percent return call rate. We call under the guidance that we’re looking to have an exploratory conversation, and it’s not a hard sell. We want to get to know talent, especially where we focus, in the lower middle market. It’s different when you’re targeting top execs in Fortune 500 companies who constantly get calls from a lot of recruiters.”

The key is constantly meeting and talking to people who could be filed away and later contacted about an open executive position at a portfolio company. Chang says that once there is an A+ executive who’s had a level of success in an LLR portfolio company, she likes to stay in touch with that person to leverage with another investment if the timing lines up.

Chris Redding is director of talent management at SK Capital Partners, a private investment firm, and was previously a partner at Korn/Ferry International, recruiting senior-level executives for healthcare-related organizations.

SK Capital invests in specialty materials, chemical and healthcare businesses where, as a firm, they possess significant industry, operating and investment experience.  “We view human capital as being a driver of superior investment returns,” says Redding. As a focused investor, SK proactively forges relationships with executives across the industries that it knows and serves.

“I look at it as alignment between the human capital and investment strategies,” Redding explains. “This approach has allowed us to build human capital as a core competency and leverage a talent pipeline rich with individuals who possess the right skill sets and experiences.”

Another strategy that SK Capital has employed is a disciplined talent assessment and selection process that focuses on the quality of the hire, and it is directly tied back to the investment thesis.  “We’re hiring against very selective criteria and specific outcomes,” says Redding. “The rigor we have put in place is to guard against the risk of making poor hiring decisions, which—as many people know—can be a huge detriment to the investment and cost several millions of dollars in terms of lost business, disruption, and time.”

Both Redding and Chang are part of a group of people in PE, all with similar positions in talent management for portfolio companies, who meet up once a year to trade war stories and to discuss issues within their portfolio that are human-capital-related, along with compensation, benefits, and best practices.

A key for SK Capital attracting top leadership is the branding of the firm and the fact that it focuses on specific industries. Redding says that “there’s been quite a bit of investment-related activity in the areas we serve, which has proven helpful with the opportunity to reinforce our value proposition.” He notes that this activity has ultimately led to greater success in recruiting A-level talent.

While LLR Partners has a CEO summit for the leadership of its portfolio companies, Chang says they also try to have the onboarding aspect of any new executive handled at the company level. However, “LLR is there to support any leadership transition for the company,” she adds.

Much in the way that searching for executives to lead portfolio companies is outsourced at many PE firms, Redding says that they do still outsource some of the tasks. “We have very strong internal capabilities, and we’ve built a very small but trusted network of advisors,” he says. “Ours is more operational hands-on; others tend to outsource more.”