Attracting and retaining employees is a key concern for many family offices. Paul J. Carbone, co-founder and vice chairman of Pritzker Private Capital, offers his take on how to hire and keep the best employees:
What is the current state of the market?
The talent stress that we saw during COVID has eased as the ability to attract and retain talent at all levels has improved. That said, there’s a scarcity of certain kinds of talent in the market.
We’ve seen more talent coming into the family capital industry. It’s perceived as more of an opportunity for top talent than we’ve seen in years past. That’s a good thing for the family office world.
What do talented people look for? There’s no indentured servitude — they will go where their needs will be met. Great talent looks for groups with strong, attractive cultures. They want the ability to learn and develop themselves and their skills. They want to be mentored and learn from the best. At the same time, they want autonomy, authority, and the right incentives to acceptably reward their abilities. So, as an employer, you’ve got to stir all of that together to hire and retain the top talent.
Sometimes families have elements of the right talent and compensation program, but they don’t always have all the elements. This might be one of the areas where traditional PE has a clear advantage. There are plenty of PE firms that have strong development programs that offer the ability for growth with the right incentives, autonomy, and support.
Where does talent come from?
Family capital talent comes from the same talent pools that traditional private equity talent does. For our most junior investment talent, we’ll source people who have graduated with great college educations and went on to an investment banking training program. We go to business schools to source our mid-level talent and, importantly, implement our own development programs to advance these individuals. We’ll source operating talent from the same sources that other groups do. We’re looking for very successful business executives who want to try their hand in a different environment.
As the family office industry has matured and developed, you’re seeing more and more talent interested in the family office and family capital industries. They see the opportunities: more professionalization in the family industry and more sophisticated family offices being created. They’re seeing that families often don’t have the need to raise third-party capital, so the risk and time required to fundraise is out of the picture. Top talent will find a way to take advantage of that opportunity.
What are the key elements of attracting talent?
In addition to seeking a positive culture, autonomy, and independence, family office professionals are looking for the right development opportunities and the right incentives.
- Development opportunities: It doesn’t necessarily have to be just title progression. Team members are looking for expertise and experience. They want to develop their skills and advance their expertise. Some family offices have a very explicit program for continuing education opportunities for their teams outside their firms, and, in particular, with various academic institutions or family office service providers. They encourage their senior team members to sit on a board outside the family group, as well, so there are all sorts of ways to provide development opportunities.
- Incentives: There needs to be further evolution in terms of appropriately incentivizing the talent among families who are, or want to be, direct investors. I don’t think it’s been optimized yet. I think team members entrusted with family capital, who are making investment decisions and overseeing company investments, should have real skin in the game alongside the family. Families should focus on the net return, not the gross return of their direct investing.
Sharing opportunity upside and downside risk with your professional team is a mechanism to create appropriate alignment and should not be looked at as a zero-sum game. When there is appropriate economic alignment between families and team members, families can be comforted that there should also be good alignment on decision making and results. This is an approach that is often attractive to professional investors as well. And sometimes families don’t implement these opportunity/risk incentive structures that talented people could find in traditional private equity, and, therefore, families don’t always attract the best talent.
