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The Rubenstein view of why family offices won’t attract the best talent

David Rubenstein, the billionaire co-founder of private equity fund The Carlyle Group, provided an interesting perspective on family offices and their ability to attract, or not, as the case may be, top talent.

Rubenstein is one of the most successful individuals in private equity, and he’s made a fortune from his impressive skills in the sector. The Carlyle Group has also attracted the best and sharpest private equity dealmakers around, so Rubenstein knows a thing or two about hiring top talent. Rubstenein also has a family office, Declaration Partners, which he set up less than two years ago. So he also knows some things about recruiting talent for family offices.  

If they (the most talented) are working for a very wealthy person and that wealthy person wasn’t going to give them a piece of the profits, they might say I can take my skills and go elsewhere

Speaking to academic economist Tyler Cowen in one of his excellent Conversations with Tyler podcasts, Rubenstein explained a lot about the inner workings of private equity and why it’s been so successful as an investment concept. 

According to Rubenstein, much of that success is due to the partnership structures of most private equity groups and how that structure rewards partners handsomely. “You tend to have partnerships because you want to share the wealth; that’s how you attract the very best talent,” said Rubenstein. 

But from the family office perspective, Rubenstein mentioned one interesting fact about why they might have difficulty attracting the best and the brightest in the investment world compared to PE funds. 

He told Tyler: “If they (the most talented) are working for a very wealthy person and that wealthy person wasn’t going to give them a piece of the profits, they might say I can take my skills and go elsewhere.

“If you have a very wealthy person, let’s say Jeff Bezos or Mark Zuckerberg, and they want to set up a private equity firm to invest, and they are the only partner, you can probably get some good people. But in the end, the really good people with the skill set will want to get a piece of the 20%. And usually, these large family offices don’t give 20% of the profits to people working for them.”

Rubenstein also doesn’t think much of using the salary and bonus structure – often used at family offices to attract top talent. He told Tyler: “You don’t usually get the highly talented people to work for just a salary and a bonus.”

And here’s the killer for family offices: “Family offices don’t usually give a piece of the profits or a large piece of the profits to the professionals there.” So, by implication, they aren’t attracting the top talent.

It would be interesting to see how Rubenstein rewards his professionals, for which there are some very senior ones – see our Analytics entry on the group –  at his family office. 

Perhaps some alternative structures out there attract the top talent? Or perhaps more family offices are offering the 20% partner structure. After all, these days many family offices are attracting top talent – at least much more so than they have in the past. 

Also, Rubenstein’s conversation with Tyler is a fantastic and highly knowledgeable guide to the workings of private equity. Indeed, all of Tyler’s podcasts are fascinating and well worth listening to if you have some spare time… 

 

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2 responses to “The Rubenstein view of why family offices won’t attract the best talent

  1. I am logged into my account but when I click on an article, I am asked to acquire an account. Please help

  2. Rubenstein has a good point, but it is only half of the reason why high potential people come to Family Investment Companies or Family Offices. The other 50% are values.

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