LPs are saying ‘enough’ and moving on

LP stands for 'Limited Patience' as overworked, overextended and stressed-out professionals cut ties and create a brain drain.

Intense turnover in investment talent has plagued limited partners at a time when market challenges demand steady and experienced hands at the top. And the constant churn of private fund professionals has impacted LPs both big and small.

One example: Jared Speicher, the one-time head of private equity for New Jersey Division of Investment, was named director of North American private equity for MetLife Investment Management in the summer of 2022. He was later joined by his former New Jersey deputy, John Panebianco.

New Jersey responded this year by appointing Dana Johns as its head of private equity. Before, she was a longtime private equity analyst and portfolio manager for Maryland State Retirement and Pension System.

As of August 2023, Maryland was still searching for a replacement for Johns. Speicher led private equity at NJ for six years, and with the departure of his deputy, the system suffered a loss of institutional knowledge of the portfolio that will take time to build back up.

“It’s impressive to see how many people have moved around to different seats”

Chris Webber, Monument Group

Further examples of the trend can be seen in job posting sites for LP investment staff openings. A recent scan by affiliate title Buyouts found postings by California Public Employees’ Retirement System, the pension systems at New Hampshire and Indiana, Amherst College’s and Rice University’s endowments, the United Nations, multiple foundations and insurance companies, plus jobs at wealth management shops throughout the country.

And none of those include job hirings handled behind-the-scenes or by recruitment firms and similar organizations.

According to a 2022 survey from the National Conference on Public Employee Retirement Systems, 63 percent of the 153 public pension systems participating in the questionnaire said they have endured or anticipate difficulties recruiting and retaining talent. Another recent survey from technology provider Backstop Solutions found that LPs who responded to their questions ranked the hardships of attracting and keeping talent as their biggest concern over the next year.

“It’s impressive to see how many people have moved around to different seats,” Chris Webber, a director at placement agent Monument Group, tells Buyouts.

The ‘LP Brain Drain’ – the large turnover of private fund-focused investment staff – has challenged the industry in several ways. It has also come at a tough time for the PE ecosystem.

For the past year, at least, many LP organizations have been contending with a double shot of potential trouble: overallocations to private equity due to public market declines, and dwindling distributions from the slower-
than-usual exit market.


Percentage of public pension systems (in a 2022 survey from the National Conference on Public Employee Retirement Systems) who have endured or anticipate difficulties recruiting and retaining talent

ESG considerations also play a role. Elsewhere, new SEC regulations could put further strain on LPs who must now manage an enhanced compliance and regulatory regime.

Institutional investors, always on the quest to find top-tier managers, must consider all of the above while attempting to navigate a very confusing economy and the prerogatives of board members and other stakeholders.

Plus, the gigantic fundraising boom of the past few years requires stretched investment teams to keep an eye on their past commitments.

All of this is leaving senior investment professionals and their teams overworked, overstretched and stressed out.

Impact of the exodus

The search for talent and constant job hopping has impacted allocators in multiple ways.

First, a lack of experienced staff –and power vacuums caused by unfilled leadership positions – can mean a slowdown in commitments, according to sources.

A loss of institutional knowledge can hamper limited partners, says Maryling Yu, formerly of Backstop Solutions. She shares an anecdote about a friend who works for the investment team of a large public retirement system. The friend, when hired, was handed a sheet of paper with a list of private equity managers now under his purview, with no further details given, and no directions about how to manage the relationships.

Private equity is also an industry in which personal relationships and connections matter a lot, notes Webber.

This means people who have shifted jobs may choose to stick with their past favorite managers, who had no previous relationship with the new LP. As well, when a long-time manager comes back to an LP institution for a re-up, he or she may encounter a new face, and a new set of obstacles, in getting a commitment, Webber says.

“Staffing has to get bigger because the investment decisions and asset allocations are becoming more complex”

Hank Kim, NCPERS

In some cases, overstretched LPs have to rely on consultants and advisers to help build and run their portfolios. But using third parties also leads to increased costs and fees, and outside consulting firms may not be as connected to the institution’s constituencies to make the best choice of managers. This is especially true if an institution changes consultants every few years.

Many vendors eye short-staffed LPs as an opportunity to land business by offering – they claim – services that help with modeling, data analysis, manager selection, due diligence, compliance and back-office needs.

Follow the money

The primary reason why LPs staffers switch jobs should come as no surprise to anyone: compensation.

Public retirement systems, college endowments and most foundations have a hard time matching salaries in the private sector. The National Conference on Public Employee Retirement Systems survey said the median salary for a CIO at a public pension system was $274,000 – a lot of money in most industries, but not in finance. Plus, talented and experienced investment professionals have plenty of options to jump ship and move from dollar allocator to dollar seeker.

But salary alone is not the only factor at play, according to sources.

Many investment teams have been strained due to the demands of the job – and a big contributor to these demands has been caused by alternative asset managers, sources say.

A frantic fundraising pace over the past several years kept LPs busy. Managers kept on rolling out new funds, which meant LPs constantly had to field calls, host meetings, conduct due diligence, prepare documents, meet with investment committees and more.

“Staffing has to get bigger because the investment decisions and asset allocations are becoming more complex,” says Hank Kim, the NCPERS executive director.

The frenetic pace of fundraising has slowed, but now LP staffs are contending with overexposure to the asset class and needing to allocate potentially tighter pools of capital to only a select few managers.

Meanwhile, co-investing strategies and the rise of GP-led secondaries place further strain on investment staff, sources say.

Geography also plays a role in finding and retaining staff. Aspiring young professionals are often attracted to buzzing metropolitan areas and may not pursue opportunities in some places considered out-of-the-way, like Harrisburg or Concord, where the pension systems for Pennsylvania and New Hampshire, respectively, are run.

It’s also hard to lure mid-to-senior talent to many areas, no matter how big of a promotion and bump in pay it may bring, says Kate Romanowicz, a senior client partner in private markets at job placement agency Korn Ferry.

“People have young families and mortgages. They have planted roots where they are based,” Romanowicz says.

Insurers also face issues finding and retaining talent. According to one insurance sector contact, private equity is still a relatively nascent strategy for many in the industry – particularly at less-established firms still building out portfolios.

The growth of firms trying to expand private equity’s reach to high-net-worth and more retail-oriented audiences also has lured talent from pension systems, endowments and other LPs, according to Webber.

But family offices also find it tough to retain talent, according to Lincoln Ellis, a senior investment strategist of global family office and private investment office services at Northern Trust. “It’s always a challenge because family offices aren’t GPs and aren’t institutional investors,” he says.

The next generation

While the situation may seem dire, it’s not a new one, nor is it insurmountable (despite the unique challenges in today’s market).

Young financial talent can get a foot in the door to the private equity industry as an LP, a career that has sometimes led to work at placement agencies, as investor relations professionals and even into regular deal analysis. So there is unlikely to be a lack of young professionals moving into LP roles, even at lower pay.

“Manager selection matters a lot. And today we have thousands and thousands of funds. It’s so hard for LPs to be able to make these decisions during the best of times. It requires a lot of sophistication. It’s not for the faint of heart”

William Kelly, CAIA Association

This is backed up by recent data. William Kelly, CEO of the CAIA Association – an organization that offers the Chartered Alternative Investment Analyst certification, much sought after by many industry professionals – says the number of people who sought the CAIA designation has returned to pre-pandemic levels, which is a sign that many younger investment professionals are developing the skills needed to properly analyze private assets.

“We think the next generation of CIOs are really going to understand how to invest in private funds,” Kelly says.

Another recent development that has helped soften the impact of high turnover at LP institutions is the rise of remote work. Using remote workers can help strapped systems, or those located in less than glamorous destinations, to attract a field of candidates they may not have been open to previously.

One system known to do this is Alaska Permanent Fund, which has members of its private equity team situated across the continental US. As CIO Marcus Frampton explained at a recent board meeting, it’s easier for staff in California or New York to meet with managers than it is for managers to fly to Juneau.

Webber also added that many college endowments have already followed this strategy, having moved teams from a college town campus to the major cities where fund managers tend to roam.

But according to Webber, it takes an experienced staff to work effectively while at home, and – as those who have worked with a recent college graduate in the post-covid era can attest – training new hires remotely can be a daunting task. And there’s also a loss of institutional knowledge that happens when people don’t get to share facetime in the office.

And, some public retirement systems have switched, or are strongly considering, a shift to an incentive or performance-based approach to compensating investment staff. CalPERS has been working for several years on ways to organize its investment staff more along the lines of a private investment company, though politics has frequently gotten in the way.

Being a public system LP is sometimes the biggest reward in itself – it’s the position itself and the control of the purse strings. Without LPs, PE would not exist as we know it today.

Finding aspiring LP workers with the right stuff is key. Says CAIA’s Kelly: “Manager selection matters a lot. And today we have thousands and thousands of funds. It’s so hard for LPs to be able to make these decisions during the best of times. It requires a lot of sophistication. It’s not for the faint of heart.”

Unintended consequences

Ohio Teachers’ drama reveals a possible downside to investment staff bonuses.

Many public investment systems have, or plan to institute, a bonus system for investment staff that beat certain goals. However, the ongoing saga of State Teachers’ Retirement System of Ohio reveals potential pitfalls with this strategy to retain staff.

Last August, the system reported annual losses in the billions for its overall fund. However, investment staff were awarded $9.6 million in bonus compensation as they beat their private equity benchmarks – with the lag time in valuations inherent to the asset classes playing a significant role.

These bonuses outraged members of the Ohio Retirement for Teachers Association, a watchdog group for the $88.7 billion system’s beneficiaries, and several board members.

Some critics of the system even alleged it may have violated state law and existing policy when awarding the bonuses.

“They really can’t lose here. In my mind, they’ve figured out how to game the system of using benchmarks instead of actual performance,” says board member Rudy Fichtenbaum, who voted against awarding staff their bonus compensation.

ORTA’s concerns prompted the state auditor to review Ohio Teachers and its private equity program, along with other aspects of the system.

The state auditor’s report, issued early in 2023, indicated that no wrongdoing took place in awarding the bonuses, but did recommend the system increase transparency about its private equity program, along with revisions to the board’s investment committee charter to foster better communication between board members and investment staff related to strategies and results.

Even after the report, controversies remain within the system. In May, Ohio Governor Mike DeWine removed former board member Wade Steen, a fierce critic of the system’s investment staff, citing Steen’s alleged poor attendance record at board meetings. However, Steen and his defenders state the move was done in order to prevent the system’s biggest critics from taking control of the board – and possibly control over significant changes to its alternative investment policies.