Fortune favours the brave as the private equity market slows down

The US-China trade war and general economic uncertainty has sent jitters through global financial markets, including private equity. But there is still plenty of optimism for those working in the industry, according to Jason Tsang, Jason has a account Team Manager at Hays in Hong Kong. He recruits experts across private equity, hedge funds, asset management and fintech. While he admits that market sentiment is currently more “conservative’’, Tsang believes the private equity sector is still looking healthy.

“There is not much to worry about as the private equity market is still strong. While growth has slowed, it has not stopped. Fund-raising may have taken a dip but there’s still a lot of money going into private equity,’’ he says. One trend he has seen during this period of economic uncertainty is a shift in attention away from smaller, boutique firms and towards larger private equity institutions.

“Smaller firms are finding it harder to fundraise. Investors want to work with larger institutions, mainly because of their longer track records and perceived lower level of risk. While the returns may not look as attractive, investors are happy to accept this in exchange for lower risks.’’ Many believe fundraising has dropped to around half of 2018 levels due to economic uncertainty, such as fears of a recession, the US-China dispute and worries of a tech bubble forming in China. As a result, less private equity funds have been launched. Exits are also favouring the big players with larger funds dominating market activity. Exits of $100m dropped 58% in 2018, compared to exits of at least $500m, which increased 26%.

While larger private equity institutions may be at an advantage in such times of uncertainty, this doesn’t mean they are making more hires. “They are still being conservative and not always looking to increase headcount. A large institution can spread the workload across existing staff rather than take on new hires.’’ Instead, Tsang has seen a move towards temporary hires, particularly in the back office for larger private equity players.

However, smaller firms don’t have this luxury. “They can’t afford to have people come in temporarily who don’t know the company operations and the funds since they run leaner teams, which can range from six to 20 people. They have no room for temps.’’ So, while larger private equity firms may be weathering the slowdown better than smaller ones, they are not necessarily hiring more.

As investors shift more towards larger institutions, Tsang doesn’t see this becoming a long-term trend. “I think when the market picks up again, the sector will equalize. Investors like having the choice of big and small private equity firms.’’ However, a more long-term trend Tsang sees playing out is a slight shift from technology stocks towards healthcare ones. Tech stocks have seen huge growth in recent years, but some feel a bubble has now formed – especially in markets such as China.

While digital wallets, e-payments and fintech in general are very much in vogue, the market has become crowded and very competitive. “It’s probably more accurate to call this move ‘diversifying’ or having ‘greater appetite’ for healthcare rather than ‘shifting’ into healthcare. Investment managers rarely have just one strategy and investing in healthcare has strong fundamentals, especially with ageing populations and limited healthcare facilities such as those in China.

With investors speculating about a tech bubble in China, healthcare looks more attractive as it is less affected by such market volatility and the rush of private equity cash. Investors are getting a wider choice both ways. “Tech companies are burning cash as they fight for market share, which is not good for investors. A lot of firms are shutting down as a result. When there is so much investment going into the technology sector, it’s hard to properly value companies.’’

Tsang, who is based in Hong Kong, finds that in private equity, technical skills are abundant in Asia, as many young professionals choose investment banking/financial roles to be their dream job. But what is in short supply are people skills, and people management experience. “Applicants with technical ability are not hard to find, but what soft skills do you have? Will you get along with the boss and fit into the culture? People skills are especially important in a small team,’’ he adds.

While there is more cautious hiring in the market, opportunities still exist. He finds movement in staff tends to be from those smaller firms struggling to raise new funds. This could be a signal to existing staff that they may need to move on. “Career driven people may leave in such conditions, opting to join companies that are raising funds,’’ adds Tsang, who specializes in recruiting Accounting & Finance professionals across Hong Kong.

In more buoyant market conditions, new hires could expect to get up to 20% increment in their salary, but in the current uncertain climate, salary rises are rarer. “A flat or moderate increment of up to 10% may still be possible but people need to realise there is a lot of competition out there for the same roles.’’

Generally, staff in the financial services industry wait until they have secured their bonus before they start looking around at other opportunities, while staying put in times of uncertainty. But Tsang advises otherwise: “Waiting for your bonus and then looking around is a big mistake as the market is most competitive then. In times when people are opting to wait for their bonuses, less people are looking around, so you will be competing with far fewer people for top-tier opportunities in the market. Really, you should always keep one eye open to other opportunities throughout the year.’’