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PE Firms Expect to Do More Hiring as Economy Recovers

Private equity firms actually have one thing going for them, as they are publicly harangued over their discount tax rate and lavish lifestyles. That improving jobs figure President Barack Obama keeps trumpeting? They’re partially responsible for it.

After two straight years where private equity executives said they were either cutting jobs or not hiring at their portfolio companies or in-house, they have reportedly reversed course. Most are ramping up their hiring, according to the follow-up report for BDO USA’s third annual private equity “PErspective” report, which surveyed PE firms ranging in size from less than $250 million to more than $1 billion.

More than half (57%) of PE executives said they increased professional staffing at portfolio companies, and even more (62%) said they’ll be hiring again this year.

The new report stands in stark contrast to BDO’s 2009 report, in which 86% of PE execs said they were reducing professional staff and headcount at portfolio companies. In 2010, most PE pros said they weren’t hiring for their firm or their portfolio companies, either.

“They [PE firms] reacted pretty quickly to the onset of the crisis,” Lee Duran, a partner at BDO, said.

The report also found that PE pros aren’t counting non the public markets for exits. More than 100 private equity executives BDO interviewed said they’re increasingly looking for strategic buyers instead of IPOs.

Others are looking to deploy plenty of dry powder they’ve amassed from LPs, Duran said.

“If the economy continues to trend positively, you will see a lot more capital deployed,” he said.

There were some other personnel notes that are noteworthy. Surprisingly, only 69% of smaller middle-market firms stated they always do background checks on incoming managers. This was less than the other PE respondents on the spectrum, including large-cap firms.

It makes this reporter wonder: Are the little guys in PE scaling back on due diligence because they’re allocating the administrative costs of portfolio upkeep elsewhere? Personally, I think this could be one of the first signs of how the middle market suffers thanks to legislation passed by Washington lawmakers in recent years requiring them to increase disclosure and regulatory compliance.