Don’t expect a rush of private equity execs to start their own firms, said Eric Zinterhofer, co-founder of Searchlight Capital.
Zinterhofer, who was speaking at the Buyouts Conference in Dallas Thursday, was asked about a Triago report that predicts up to half of GPs could disappear in the next five years as junior PE execs form their own firms. “I don’t think you’ll see a ton of new guys starting their own firms,” Zinterhofer said during the Newsmakers panel.
Why is this? Some PE execs may complain, but most don’t end up leaving their firms, Zinterhofer told me on the sidelines of the conference. “While there is always a degree of angst among senior professionals at PE firms, at the end of the day the job is very attractive and the ‘golden handcuffs’ are significant,” Zinterhofer said.
It’s also a tough fundraising environment for new funds. And while some PE execs may be successful at larger firms, they lack strong enough personal track records and relationships to succeed on their own, he says.
Earlier Thursday, Tully Friedman, co-founder of Friedman Fleischer & Lowe, addressed succession issues at his firm. He told the Buyouts crowd that the so-called “founders of private equity” didn’t need to step down just now. But Tully does think that up to 50% of PE firms could vanish. See story here.
Zinterhofer, for his part, also doesn’t think the “founders of PE” should step down. Some GPs and firms, like Stephen Schwarzman at the Blackstone Group, have done a good job dealing with succession, he told me on the sidelines. “The founders are smart guys,” Zinterhofer said.
Zinterhofer’s comments come after he recently formed his own firm. Zinterhofer spent 12 years at Apollo Management, where he was most recently co-head of media and telecom, before leaving. He wouldn’t tell me why he left Apollo but Zinterhofer co-founded Searchlight during the summer of 2010, along with Oliver Haarman, a KKR partner, and Erol Uzumeri , who led the PE business at the Ontario Teachers’ Pension Plan. The PE firm, with offices in London, New York and Toronto, invests in sectors including communications, media, business services and financial services, according to the Searchlight web site.
Starting a new firm is hard, Zinterhofer said. Executing the firm, which includes acquiring essentials such as office space, furniture and even a coffee maker, is a lot of work and should be done before dealmaking can begin, said Zinterhofer. “Otherwise you’re just three guys and a PowerPoint presentation,” he said.
What’s the best advice for execs looking to start their own firms? “Plan as much as you can before hand,” Zinterhofer told the Buyouts crowd. Zinterhofer said he spent two years formulating a strategy before starting Searchlight.
A new firm should not rely on the track record of the execs but have a differentiated strategy, Zinterhofer said. Also, make sure to define responsibilities early on and hire a CFO and office manager as soon as possible to get the firm’s infrastructure in place, he said. “Think about what the firm will look like 10 years from now,” Zinterhofer said.