Strategic Turnover in Private Equity Firms: An Observation from the Field
For private equity managers, the art of talent assessment is both critical and complex. Tenure, cohesion, and shared history are often highlighted as indicators of stability, promising investors a consistent team. Yet, there's a nuanced reality: turnover, while sometimes perceived as a red flag by limited partners, can be a necessary strategic refresh that propels a firm forward.
Over our two decades of client work we have come to believe that assessing alignment with the firm’s values and goals is necessary alongside individual performance. When an individual’s path diverges from the company’s trajectory, decisive action is warranted to preserve the firm's integrity and direction. It’s what your clients expect you to do.
As firms evolve, so must their cultures. What is deemed a strong fit in the initial stages of firm, may not align with leaders’ evolved vision several years on. The impact of such a misalignment can be costly. Few problems are as intractable as people ones. The costs of poor fit are high.
Effort associated with fitting a square peg in a round hole
Distraction
Negative team morale
The real opportunity cost of not devoting time to other pressing firm matters
The psychological overhead that seems “soft” or minor but in reality, is energy draining
These, each on its own, or taken together can easily outweigh the perceived magnitude of LP’s concerns. These are your partners, they will understand. Provided they hear it from you and not in the marketplace.
At Sundial we believe that the strength of a firm lies in its ability to evolve. The firms dedicated to futureproofing succeed in the long run. By continually evaluating talent and understanding when turnover can bring about growth and improvement, thoughtful managers optimally position their firms for enduring success and stability in the ever-changing real estate and investment management landscape.
Need help thinking through these issues? We can help.
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