Private equity has solved for capital. Record fundraising, unprecedented dry powder levels, and aggressive deployment targets have become the norm.
Yet increasingly, the constraint on value creation isn’t financial: it’s human.
At the recent ACG Midwest Capital Connection conference, a clear consensus emerged among deal professionals and talent experts: PE firms are long capital and short talent. And in today’s market, that talent shortage is determining which deals get done, which portfolio companies outperform, and which firms build sustainable competitive advantages.
The Structural Forces Creating Scarcity
The executive talent pool PE relies on is shrinking precisely when demand is accelerating. Three forces are colliding:
Fewer exits mean fewer proven leaders
The exit environment has tightened dramatically. Bain’s 2024 Global Private Equity Report highlights multi-year lows in exit volume and a backlog of unexited assets. When portfolio companies stay private longer, fewer executives re-enter the market with recent, proven exit experience, shrinking the pool of leaders who’ve delivered returns through multiple inflection points.
Demographics are working against supply
Baby Boomers — who disproportionately occupy C-suite and operator roles — are retiring at accelerated rates. Pew Research notes that roughly 10,000 Boomers retire every day. Gen X, the next cohort, is significantly smaller. The math simply doesn’t support the volume of CEO, CFO, and CRO hires middle-market PE needs.
Longer hold periods are trapping talent in seats
According to PitchBook’s 2024 US PE Breakdown, the average hold periods have extended from ~4-5 years to 6-7 years or longer, reducing the frequency with which high-performing operators come back into circulation.
The result: winning deals increasingly depend on the ability to find and install the right leaders fast. Talent quality has become the deciding factor between executing on a deal or passing entirely.
The Value Creation Stakes
Leadership quality is no longer a soft factor — it is the single largest driver of returns. McKinsey’s recent analysis found that talent accounts for 50–70% of value creation across top-quartile portfolios.
The cost of getting it wrong, or moving too slowly, compounds quickly. One example discussed: a portfolio company with a CFO seat open for 275 days. The value destroyed during that vacancy far exceeded any incremental savings the firm thought it was achieving by offering below-market compensation.
The inverse is equally clear. One panelist shared how a portfolio company delivered an entire year’s worth of planned value creation simply by replacing two critical roles with A+ talent mapped directly to the value creation plan. The concept introduced: “A-players for A-levers” precision hiring that aligns top talent with the top 2-3 strategic priorities driving enterprise value.
This isn’t about hiring the best candidate available. It’s about hiring the right candidate for the specific value creation thesis.
Why the Old Playbook Fails
Most PE firms still treat talent acquisition as transactional rather than systematic. Searches are launched reactively. Stakeholders aren’t aligned. Assessment processes rely on gut feel and personal chemistry rather than objective evaluation against value creation priorities.
Today’s leaders must go beyond industry familiarity and pedigree. They must bring the emotional and relational intelligence to operate in high-velocity, high-growth settings. Recent commentary by Kingsley Gate emphasizes traits such as integrity, strategic humor, and in-person leadership as clear differentiators.
The biggest challenge in talent assessment, panelists noted, isn’t the candidate: it’s stakeholder alignment. Operating partners and executives often fall in love with irrelevant qualities: industry familiarity, personal rapport, pedigree. What gets overlooked is whether the candidate has the specific capabilities needed to execute the value creation plan.
Compounding this: growth stage matters. Hiring for a $10M EBITDA business is fundamentally different from hiring for a $40M EBITDA business. Middle market PE often requires “step-down” candidates, leaders willing to move from larger, more established platforms to smaller, higher-growth environments. These profiles require different sourcing strategies, different value propositions, and different evaluation frameworks than traditional “step-up” hires.
Without alignment on what the role actually demands at a specific stage of company maturity, firms end up with expensive mis-hires that slow or derail the value creation plan.
The Case for Talent Infrastructure
Winning firms increasingly treat human capital the same way they treat deal sourcing: as a system.
A sustainable “talent engine” requires five components:
Process
Consistent, structured, repeatable hiring frameworks
Technology
Tracking systems, workflow management, analytics
Assessment
Objective evaluation methodologies, not intuition
Negotiation Discipline
Data-driven comp strategies that close A-players without overpaying
Onboarding and Development
Integration plans that set new leaders up for success
When any part breaks, the whole engine stalls. And most firms are still operating without two or three of these components entirely.
The integration of AI into talent workflows is accelerating this shift. According to AI experts on the panel, AI can automate approximately 95% of search-related tasks, sourcing, resume parsing, scheduling, process coordination, and initial screening. What it cannot do is replace the 5% that actually determines outcomes: judgment, persuasion, relationship-building, and nuanced human assessment in high-stakes contexts.
Firms ignoring AI will fall behind. But those relying exclusively on consumer-grade tools without understanding the risks will get burned.
The AI Arms Race and Its Risks
AI is transforming talent acquisition on both sides of the table, and not always in productive ways.
Candidates are already gaming systems. Panelists highlighted emerging tactics such as hidden white-font resume hacks to inject keywords that pass ATS systems but are invisible to human reviewers and real-time interview-assist tools that feed scripted answers during video calls.
This creates new responsibilities for PE firms and their talent partners to verify authenticity, triangulate capabilities across multiple evaluation methods, and pressure-test performance under conditions where AI assistance isn’t available. On the firm side, AI adoption faces internal resistance. The primary barriers aren’t technical, they’re cultural:
- Fear that automation will eliminate roles
- Lack of trust in systems people don't understand
- Overhyped expectations that AI can do everything (it can't)
- Insufficient time invested in testing, training, and process redesign
Firms that address these integration challenges early will extract disproportionate value from AI-enabled talent workflows. Those that don’t will continue to operate with the same capacity constraints they’ve always had, while competitors accelerate.
The Competitive Wedge
Private equity’s talent problem isn’t going away. If anything, the gap between supply and demand will widen as more capital chases fewer high-quality operators.
But this dynamic is creating a new competitive wedge. Firms that build disciplined talent infrastructure, that treat human capital as systematically as they treat deal execution, will:
- Win more competitive deals because they can move faster and with greater conviction on leadership.
- Create more value post-close because they install the right operators at the right stage
- Attract better talent because A-players want to work with firms that have their act together
Those that continue treating talent as an afterthought will increasingly pass on deals they can’t staff, underperform on deals they do, and watch their best portfolio company leaders get poached by better-organized competitors.
The firms that win the next cycle of private equity won’t just be long capital. They’ll be long talent infrastructure — a far harder advantage to replicate.
Kingsley Gate moderated the panel discussion at the ACG Midwest Capital Connection conference, where these insights on PE talent strategy and human capital infrastructure were shared by industry leaders.
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