News & Insights

The private equity industry faces a compensation crisis that threatens the very foundation of modern value creation. Operating partners now drive 47% of returns in buyout deals—nearly three times their contribution in the 1980s—yet their compensation often trails deal teams by 30–50% at equivalent seniority levels.

Private equity is undergoing its most consequential shift in 50 years. Firms with sophisticated operating capabilities are outperforming peers by 2–3% IRR—compounding into hundreds of millions in additional fund value. Meanwhile, firms still clinging to financial engineering are facing LP defections, failed fundraises, and existential risk.

The most important talent decision in private equity isn’t who leads the next deal—it’s who you hire as operating partner. With 47% of PE value creation now from operations (Accenture), getting it wrong means expensive misfires: consultants who never execute, or operators who alienate management (Umbrex.)

Conventional heuristics—like one operating professional per investment professional or 0.5–1.0 per $100M AUM—mislead firms. Scaling isn’t linear; it’s step-function based. Teams grow in stages: startup (1–3), emerging scale (5–15), mid-scale institutionalization (15–30), and platform (50+). Each transition requires wholesale redesign in governance, specialization, and processes. Firms that add headcount without changing structure end up bloated or underpowered.