Private equity professionals have seen some very good days in their return history (as a whole). Coinciding with those good returns were above average employment growth. So far, through the first half of 2012, it has not been a good year for private equity employment, with the most recent estimate of the employment count coming in down about half a percentage point compared when compared to the second quarter of 2011. The decline in the second quarter came on top of an estimated first quarter decline of about 0.06 percent. 
On the whole, employment in the private equity industry has been declined five of the past six months of 2012. The decline through the first two quarters of 2012 is actually a reversal of what the industry saw in 2011, with an average monthly growth rate in employment of 1.4 percent.
Given that private equity managers perform a number of the same functions as hedge funds, what could be causing the industry to under perform its industry competitor by around two and a half percent through the first half of 2012?
A couple of reasons come to mind.
First, private equity investments generally are less liquid than hedge fund investments. And, in an era when there’s a high value placed on liquidity, private equity money managers generally lose out on some business.
The second issue is that private equity may be losing its ability to generate above market returns (the industry actually needs to provide not only above market returns but also provide an extra return to compensate for liquidity risk).
This issue is, of course, very complex and hotly debated, but the general idea is that a private equity manger’s ability to pick non-publicly traded businesses as potentially huge success stories has become ever more difficult with the advent of competitors looking to do just that and also provide access to other areas of the financial universe.
How is Private Equity Performing vs. the Economy?
The answer is: not so good for the current year. Overall, the employment in the private equity industry is down an estimated 1.7 percent compared to the overall economy-wide growth rate of about 1.4 percent through the first half of 2012. The three point swing is not only the result of pressure on the financial industry of the whole, but also the result of competitors within the financial industry taking away business.
Overall, the only issue that really matters when it comes to employment is – “where’s it going.”
The future of the industry largely depends upon private equity professionals’ ability to outperform competing money managers, with the biggest competition being hedge fund managers.
David Kochanek, publisher of Private Equity Jobs Digest, said, “If professionals within the industry can again show the value of the industry, the money will flow and employment will pick up.”
Even so, confidence among investors, though, is not an easy thing to rebuild.
An Update on the Employment Side of the Private Equity Industry
Private equity professionals have seen some very good days in their return history (as a whole). Coinciding with those good returns were above average employment growth. So far, through the first half of 2012, it has not been a good year for private equity employment, with the most recent estimate of the employment count coming in down about half a percentage point compared when compared to the second quarter of 2011. The decline in the second quarter came on top of an estimated first quarter decline of about 0.06 percent. On the whole, employment in the private equity industry has been declined five of the past six months of 2012. The decline through the first two quarters of 2012 is actually a reversal of what the industry saw in 2011, with an average monthly growth rate in employment of 1.4 percent.
Given that private equity managers perform a number of the same functions as hedge funds, what could be causing the industry to underperform its industry competitor by around two and a half percent through the first half of 2012?
A couple of reasons come to mind.
First, private equity investments generally are less liquid than hedge fund investments. And, in an era when there’s a high value placed on liquidity, private equity money managers generally lose out on some business (http://blogs.wsj.com/privateequity/). The second issue is that private equity may be losing its ability to generate above market returns (the industry actually needs to provide not only above market returns but also provide an extra return to compensate for liquidity risk) (https://insidethefirm.wpengine.com/private_equity_paper_robinson.pdf). This issue is, of course, very complex and hotly debated, but the general idea is that a private equity manger’s ability to pick non-publicly traded businesses as potentially huge success stories has become ever more difficult with the advent of competitors looking to do just that and also provide access to other areas of the financial universe.
With this background in mind, how is the industry performing against the economy as a whole? The answer is: not so good for the current year. Overall, the employment in the private equity industry is down an estimated 1.7 percent compared to the overall economy-wide growth rate of about 1.4 percent through the first half of 2012. The three point swing is not only the result of pressure on the financial industry of the whole, but also the result of competitors within the financial industry taking away business.
Overall, the only issue that really matters when it comes to employment is – “where’s it going.”
The future of the industry largely depends upon private equity professionals’ ability to outperform competing money managers, with the biggest competition being hedge fund managers.
If professionals within the industry can again show the value of the industry, the money will flow and employment will pick up. Confidence among investors, though, is not an easy thing to rebuild.
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