Global buyout firms: Change at the top

Discussions about succession planning within private equity firms in Asia tend to cover similar topics. Has the founder filled out the mid-level ranks with talented people who can form the bedrock of the next generation of leadership? Are those people suitably incentivized that they will remain with the firm? Is the founder of a mind to step back when the time is right or will letting go be a struggle?

While succession planning is an exercise that spans human resources management, investor relations, and business development, there is a paper trail. Particular attention is often directed at two areas: the distribution of fund economics, including carried interest and excess management fees, as well as ownership of the management company that runs the firm; and dispute resolution covering the different circumstances under which someone might depart.

These issues are generally less of a priority for smaller firms on their early funds, when there isn’t enough of a track record to say with any certainty that a valuable franchise will emerge. However, even some of the more established names in Asia have yet to offer LPs satisfactory answers to the questions listed above. The same cannot be said of the global buyout firms, which have become so large in scope and broad in ownership – in part thanks to management company IPOs – that they are not so much about an individual or a small group of individuals.

Perhaps because of this, the recently announced changes in the leadership at The Carlyle Group have instead provoked philosophical discussion about the broader outlook for the industry. William Conway and David Rubenstein are swapping their CEO roles at Carlyle for executive chairmanships, while Daniel D’Aniello relinquishes his role as chairman, but no one is questioning whether the firm will continue. It was the same at KKR earlier this year, when Henry Kravis and George Roberts initiated a succession plan by handing over responsibility for day-to-day operations.

Capital continues to flow into the alternatives space and these firms – with their brand names, long track records, and large global footprints – are natural targets. But what does the future hold for them in a world in which they no longer represent a niche asset class; the investment landscape has become global yet is also increasingly complex; the competition is more diverse and the stakeholders more varied; and they can no longer call on the magic touch of their founders (largely during fundraising processes) to the same extent as before?

Of course, that world is already taking shape. It is no coincidence that Kewsong Lee, one of the incoming co-CEOs at Carlyle, has spent time on the firm’s credit unit, or that his counterpart Glenn Youngkin previously ran the energy business. At KKR, Joe Bae and Scott Nuttall, the new co-presidents and co-COOs, used to lead the firm’s Asia operations and its credit and capital markets businesses, respectively. Each one has proved himself with a relatively new strategy that is expected to play a major role in the future of the more diversified, multi-asset managers for whom they work.

The organizations these individuals will lead are far removed from the North American leveraged buyout shops that their predecessors created. And the skills required to perform the job, as well as the way they perceive their roles within these organizations, are understandably somewhat different. Clearly, the new leadership teams buy into the culture of their firms – they wouldn’t be where they are now if they did not – but they are custodians of the flame, not the ones who lit it.

The most significant change, therefore, is the loss of big personalities: those founders who traveled widely and beat the drum loudly because their reputations, and to a certain extent their livelihoods, depended on this once-nascent industry achieving critical mass.

Where the global firms go, their Asian counterparts will presumably follow. Consciously or not, LPs identify certain firms in this part of the world by their founders, as evidenced by a tendency to interchange the names of the individual and the group in conversation. As these individuals begin to step back, their auras will fade – which is fine, as long as the succession planning has been strong enough to ensure the returns don’t fade as well.

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• Topics
• GPs
• North America
• The Carlyle Group
• KKR
• Henry R. Kravis
• George R. Roberts
• David M. Rubenstein
• William E. "Conway Jr."