Vistra Insights

How private equity firms can retain talent and optimise fund administration

Staff turnover is a huge challenge for many organisations and the funds industry is no exception.

In one 2020 survey of private equity firms, 82 percent said they had challenges retaining talent. Separate research by Pitchbook indicates 27 percent of venture capital and private equity firms lost a partner or key recruit last year. Forty percent of these employees joined a competitor.

It’s likely the Great Resignation has only compounded recruitment and retention challenges for funds. To remain competitive and meet demand for higher returns, increased transparency and new priorities like environmental, social and governance (ESG) performance, funds need to retain talent. When a key employee or partner leaves, a firm loses expertise and resources, which can stunt an organisation's growth and alarm investors.

Investors want to keep valuable resources and expertise working for them to produce returns, and higher turnover jeopardises this. Firms can boost investors' confidence by focusing on two key strategies: improving in-house talent management and outsourcing fund administration roles.

Improving in-house talent management

Focusing on in-house talent management can help firms retain valuable employees.

Research has shown it can cost between 50 to 200 percent of an employee's annual salary to replace them. These costs could total millions of dollars a year for a firm if multiple employees leave — not to mention the intangible costs of lost institutional knowledge, creative and strategic thinking, mentorship and the exchange of ideas that often happens within longstanding teams. 

One way that firms can tackle this challenge is to integrate ESG more heavily into their employment practices, which can encourage mission-driven talent to stay. Younger generations want to work at an organisation that shares their core values, and they often want to feel their work contributes to improving other people's lives. Firms that focus as much on the mission as the bottom line will be in a better position to attract and retain diverse talent. This also has the added benefit of aligning firms’ talent strategy with a critical investor priority, as new talent may already be passionate about ESG and offer innovative ideas that improve the portfolio's ESG performance and reduce the fund's ESG-related risks.

 While values are important, firms can’t lose sight of compensation. Some firms are paying six-figure retention bonuses to keep in-house talent, while others are offering perks like flexible work schedules, better wellness programmes, and more mentorship and career coaching.

Though these perks may not be feasible for every firm, it's critical for funds to look at their current benefits programmes and explore ways to improve them. One option funds can consider is to bring in third-party HR advisory services to evaluate their current benefits and compensation packages. These providers offer services such as compensation and benefits benchmarking, talent management and succession planning support. Working with a partner may allow firms to quickly execute an improved retention strategy with the benefit of current best practices their in-house staffs may not be aware of.

Outsourcing fund administration roles

While focusing on in-house talent management can improve retention, firms need to employ a multi-faceted approach to effectively retain knowledge and expertise within their organisations.

Outsourcing can make strategic and financial sense in many cases, particularly when it comes to fund administration. Outsourcing fund administration guarantees stability and retained knowledge regardless of what happens in the broader talent marketplace. It also removes the pressure of retaining in-house talent for certain tactical roles.

Outsourcing can help firms avoid knowledge loss and save time and money on rehiring and retraining. Every organisation has tasks that are often less valuable or inefficient to perform in-house. In some cases, these tasks may be necessary but tedious, such as compliance-related activities. Outsourcing allows a firm to redeploy its resources to high-value internal projects rather than having a highly skilled employee spend a considerable part of their workday handling mundane activities.

A third-party fund administrator can handle various tasks for firms, including fund accounting, ESG data collection and reporting, investor and regulatory reporting, and various back-office processes. It also can provide technology that helps firms expand their IT capabilities and gain more visibility into their organisational data. On top of this, a fund administrator often comes with deep industry expertise derived from multiple client engagements with other firms, so they likely have defined operational best practices and recognise potential pitfalls that can minimise a firm’s business risks. Though outsourcing does come with an additional expense for firms, the value a fund administrator provides often far outweighs the costs.

Meeting new investor demands

Funds face a host of evolving operational and regulatory challenges, along with increasingly high investor expectations.

Addressing new investor demands will require a combination of technology, operational and business process improvements, all of which are connected to harnessing the right talent and resources. Every firm's goal is to deliver an enviable return for investors, but to achieve this, firms need the best people on their team. Improving in-house talent management while outsourcing fund administration where it makes sense can help firms succeed in today’s competitive environment.

Sadrack Belony, director of investor services at Vistra, contributed to this article.

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