August 8, 2017

Human Capital Arbitrage in Private Equity

One of the more prevalent developments within Portfolio Operations teams has been the creation of the Human Capital Partner. As money and debt become more of a commodity, and transformation expertise is more regularly and uniformly deployed, one of the remaining levers ripe for differentiation centers around Human Capital.

The prosperity of a PE firm has a direct correlation to the quality of the people involved with their deals. The right people make a big difference during diligence when trying to accurately price a deal. The right management team has a disproportionate impact on the return the company is capable of hitting. The network of the deal partners may lead to an insulated proprietary process which can insure a positive outcome. Properly designed, a Human Capital Partner should be impacting all of these dimensions for success.

There are a number of different points of view related to the right background for a Human Capital Partner. That will ultimately be a debated topic inside the PE shop. But once they center on the right background for their needs, there are some common themes on which a Human Capital Partner should deliver in order to create value. In interacting with many of these folks over time, I have analyzed the ways in which they are successful and codified it into a “Value Creation Pyramid for Human Capital”, set forth below.

Human Capital Arbitrage in Private Equity



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