Succession planning: Ending an era

Ask any Australian LP to list their concerns about the domestic private equity industry and succession planning usually ranks highly. This is understandable. The GP community is relatively small and there are some well-known examples of succession planning gone awry. CHAMP Private Equity took its time to complete a transition to the next generation while CHAMP Ventures failed to do so at all. Most of the latter's team now operate under the Odyssey Private Equity banner.

Investors are looking with interest at Quadrant Private Equity and Archer Capital, two middle-market managers with records of delivering strong returns. Both firms have taken steps to bring through younger professionals – some of whom now occupy senior positions – but it remains to be seen what happens in terms of team stability and performance as Chris Hadley and Peter Wiggs come closer to retirement. Neither, it should be noted, has outlined plans to step back.

If there is a poster child for effective succession planning in Australia, it sits towards the lower end of the middle market. Advent Private Capital has completed its leadership transition over the last couple of years, as Rupert Harrington moved to an executive chairman role and four younger team members were elevated to partner level. Managing Partner Robert Radcliffe-Smith is the longest-serving of the new guard, having joined in 2002. The other three arrived between 2007 and 2013.

The name of the firm has also been changed to Advent Partners, reflecting the ownership structure of the GP. Advent is now onto its seventh fund, but the vehicle is known as Advent Partners I.

Simon Vegter, one of the four partners, offered some insights into the firm's succession planning at the Australian Private Equity & Venture Capital Association's (AVCAL) recent alpha conference in Melbourne. He was participating in a panel – alongside Anne-Marie Birkill, a managing partner at OneVentures, and Gareth Banks, a founding partner at Odyssey – that addressed topical issues on a hypothetical basis, but at certain points the veil between hypothetical and actual was very thin.

First, if a partner is reaching a point at which they are likely to be considering retirement, start talking about the transition 7-8 years in advance. "You need to be open and honest with them about where the firm is going and what the future might look like," Vegter said. "During that period, there are discussions around what the share economics would be in the future and the new generation of partners gradually taking more ownership of the day-to-day operation of the business."

Second, build an investment partnership around trying to attract, retain and promote people through the organization. Of Advent's executives, 80% have equity in the business so there is a pathway to becoming increasingly involved in – and incentivized by – the partnership. Individuals coming into the firm should be able to see that progression through the ranks is connected to achievements that are beneficial to the firm. And promises should be delivered on.

A willingness to invest in people is also critical. "Salary and share of carry and so on are really important, but showing you are really serious about building skills is important as well through external professional development opportunities, bringing them along into situations they may not have experience in," Birkill added. This might mean having people sit in on board meetings, get involved in activities like investor relations, or participate in other areas of portfolio management.

This is all good industry best practice, but ultimately it was hypothetical. Every private equity firm is governed by a different set of dynamics. While structure is certainly a factor – highly concentrated economics are generally problematic – personality is a bigger one: founders must be forward-thinking in terms of what type of legacy they want to leave.

Succession planning is a relatively new phenomenon in Asian private equity and some of the issues that arise won't be the same as those already encountered by some managers in North America and Europe. But one rule holds true, irrespective of geography: those that leave the process too late - or let it string out too long - will struggle to make it work.

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• Topics
• Australasia
• GPs
• People
• Australia
• CHAMP Private Equity
• CHAMP Ventures
• Quadrant Private Equity
• Archer Capital
• Advent Partners
• Advent Private Capital
• AVCAL
• OneVentures
• Odyssey Private Capital
• Appointments