ImpactAlpha, Jan. 9 – Tired: Cost cutting and financial engineering. Wired: Investments in workers as assets.
The private equity industry owns firms that employ at least 12 million people. Now, some of the largest firms, including KKR, Blackstone, Bain and Two Sigma, are embracing strategies to advance the skills and benefits of workers to win deals, unlock value and outperform in a crowded marketplace.
The private equity industry, better known for layoffs and restructuring, can be a key lever in creating quality jobs, says Megha Bansal Rizoli of Jobs For the Future. “The old ways of working aren’t the only ways of working anymore,” Bansal Rizoli told ImpactAlpha.
With the number of PE firms doubling over the past five years to 19,000, competition and regulatory pressure are pushing firms to see talent not as a cost to be cut, Bansal Rizoli says, but “as a core asset of a business that can be a growth strategy, that can be a strategy for innovation and scale for those companies.”
Levers to pull
Nonprofit JFF aims to have 75 million people employed in ‘quality jobs’ over the next decade.
Its new report finds PE firms clustering around three levers to drive job quality: designing quality jobs, including compensation, advancement and culture (HCAP and Two Sigma Impact, for example); building inclusive pathways for workers (Blackstone and Bain); and advancing employee-ownership models (KKR and Apis & Heritage).
It’s about “alignment of incentives,” says Bansal Rizoli. “Doing well for workers will grow your businesses, will get you higher valuations, will get you higher returns.”
KKR is establishing employee-ownership programs at each company it buys through its $19 billion Americas Fund XIII; nine exits from the fund so far have returned between 3x and 10x KKR’s invested capital.
Blackstone’s ‘Careers Pathways’ program has worked with nearly 50 portfolio companies to source overlooked talent. The program is embedded in portfolio operations, “which signals to the business its importance,” says Bansal Rizoli.
More than two-thirds of the companies in Bain Capital’s portfolio measure ‘employee engagement’ by geography and demographics, following a Bain push to support internal HR teams.