Dry Powder Changes In Leadership

Are fluctuations in the use of ‘Dry Powder’ causing ambitious fund managers to ‘fast track’ through unexpected routes? Our Head of Energy & Infrastructure Craig Davidge takes a look. Craig Davidge Jan 02, 2024

It may be a well-known phrase in the investment world, but the term ‘dry powder’ refers to something unrelated, albeit just as potentially explosive, as finance – gunpowder.

The saying, which is slang for marketable securities that can be converted quickly into cash, is attributed to Oliver Cromwell’s time. Long before Wall Street and the Square Mile, during the 1800s and the days of muskets, soldiers needed to keep their gunpowder dry to load guns at short notice.

And in today’s volatile, highly competitive markets the maxim remains not too far from the truth. Cash – and cash-like – reserves, while in their trillions, are fluctuating or being spent in new ways.

While the overall amount on the sidelines has grown, fundraising has been difficult with some asset classes and regions seeing a decrease in dry powder during 2023.

One could argue that a concentration of dry powder exists in the bigger PE funds as limited partners (LPs) have gravitated towards these believed safe havens, assuming they offer better returns and resilience due to scale and stability.

However, some believe the small and mid-sized segment offers a broader and more attractive set of investment opportunities for LPs delivering more robust and persistent returns over time. Several small and mid-sized private equity funds have outperformed larger funds across various regions and strategies during challenging economic periods.

Whatever your perception, risk adverse firms not offering LPs differentiated strategies have found fundraising extra challenging and consequently have lost talent.

Perhaps unsurprisingly, the impact of this continued disruption is driving career decisions for executives and senior directors in investment – and leading to some unexpected moves in the process.

There are two particular areas we are seeing of interest:

  • The Article 8 Fanatic: Ambitious leaders moving from the bigger organisations to smaller more agile, purpose-led outfits
  • The Fence Hopper: Originators and deal makers moving to asset management as markets shift

The Article 8 Fanatic – a smart move for the less risk averse

This future leader is the most nuanced – and new – as we see the impact of areas such as Article 8 funding make inroads on vital areas around ESG and the climate crisis.

Undeniably some of the world’s bigger investors rate among the best career development businesses around. Pathways to leadership is clear, practical and based on specific principles for success.

The major players are well versed in spotting talent young and providing opportunity to take on large assignments early in their development and spearhead significant deals. Some also focus on the entrepreneurial spirit of its employees and their ability to rise using initiative.

These career pathways make sense as competition for the best talent is fierce and the ‘megacorps’ are used to fighting it out among themselves.

However, many leaders now understand the value of learning more about how to invest with a sustainability-first approach and want to add ‘purpose’ to their portfolio as part of their own personal contribution to the industry and wider world.

This is leading to some sideways moves – often out of the bigger businesses, into smaller fund managers with value add and opportunistic sustainable investment targets.

Smart, right? Yes, but only for those who are comfortable ‘breaking ranks’ and have the appetite for risk with a view on gaining ground quickly. The feeling is these professionals will initially move into smaller firms then return to the ‘mothership’ once they have gained the expertise and leverage needed to leapfrog some of their peers.

For clarity, it is not that Article 8 funds do not exist in the bigger organisations. Rather that for some it may feel opportunity to manage them directly or play a more impactful role is not as accessible as moving into smaller businesses at a higher level, creating impact and raising personal profile.

But there is inherent risk with this career ‘supercharging’.

While most of the funds in the bigger companies will come in around Article 5-6, the raising of funds with higher ESG positions is on the up, so the advice for talent with an eye on C-Suite to make as high-impact – and short – a detour as possible keeping an eye firmly on the longer-term prize.

The Fence Hopper – a good move if the grass is actually greener

Moving from originator to asset management is not just a trend we see during times when cash is being used at higher levels than usual but also during calmer economic environments.

Both fields deal with finance and the markets, sharing many common perspectives and goals – although, it is vital to note, they require different skillsets and, often, mindsets.

The drivers of these moves right now are around a lack of investment release into the bigger infrastructure projects and a focus on upcycling existing stock. In addition, firms do not want to lose people just because the immediate capital is not there, so it remains an option for some to ‘flip’ future leaders into a new milieu.

So, what can people looking to make the leap to asset from fund management expect in the process?

It is no secret that hopping over the fence is not for everyone, so deeply evaluate your own skills and the long-term career benefit. For example, there may be a CEO or a leadership team on the asset management side that has a particular methodology you are interested in or are working with assets of particularly high profile.

There may also be a wider sustainability angle here. Getting up close and personal with latest technology and how it works in the field is excellent experience, providing an edge when returning to core financial advising.

Personal adaptability and resilience is central to success, as the uphill battle to ‘prove’ your worth on the asset side will depend on how willing – and capable – you are at learning quickly and create value.

Keeping your eyes on the prize

This learning and adaptability is of course central in every leadership journey and at times of unrest and unpredictability the need for this is potentially even greater. Just as in any conflict – even as far back as Oliver Cromwell’s day – staying agile and future focused to assess the opportunities is vital for longevity.

It is often true the most successful leaders in any arena are usually the ones who know they are always ‘the graduate’ – and every individual should be assessing their career every five years at least if they are seriously ambitious.

Some top tips relevant at every stage in your career:

  • Assess Your Skills and Knowledge: self-awareness is key! Evaluate your current skills and knowledge to understand what type of next step will be right for you. Ensure you receive feedback from coaches, managers, and peers.
  • Education and Certification: What is typically needed at the senior end as well as commitment to the field and expertise?
  • Networking: Who in the network are you able to reach out to? Connecting with professionals to build relationships and gain insights into the businesses you may work for.
  • Seek Internal Opportunities: Is the business you work for in investment also running an opportunity you are looking for? What is specific to this situation? What will it mean to explore transfer to an asset management division?
  • Stay Informed: Keep up with industry trends and market developments to make informed investment decisions. This knowledge will help you excel in your new role.
  • Continuous Learning: Once you've transitioned or moved, how can you continue learning and adapting to changes in the industry? You are working a dynamic field so staying current is essential for success.

And when moving is not an option? Staying resilient is key:

Five leadership qualities that distinguish between surviving and thriving:

  • Stabilise today, and harness both the energy and the constraints of volatile conditions to spark innovation tomorrow.
  • Paint a picture of a compelling future and path forward that your stakeholders can support and rally around.
  • Taking decisive action - with courage - is often more important than getting it right.
  • Serve the heart of your organisation, your purpose, and your societal obligations, while simultaneously making hard decisions to protect financial viability.
  • Stay focused on what’s on the horizon to instil confidence and steadiness across your ecosystem.

Keeping in touch with executive search contacts also provides insight, advice and resources to support you in your next move – and future life choices – no matter what position you’re in.

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