Private Equity Firms: The Best Place to Learn?

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Private equity firms, where investment decisions result in millions of dollars of gains or losses, may seem like an ideal learning environment for investors. Surrounded by smart colleagues, loads of data, and access to experts, one might expect that private equity professionals have all they need to optimize their learning.

A study by Aamir A. Rehman of Columbia University found, however, a more nuanced answer. Dr. Rehman’s research found that in some ways, private equity firms can be highly supportive of their professionals’ learning and development. In other ways, they often may not be.

Applying a framework developed by Sveinung Skule (2004), Rehman studied the extent to which private equity workplaces supported learning. He found that several aspects of the private equity environment did support “learning intensity.” In particular, private equity professionals have their learning accelerated through access to broad networks and to a high level of variety in their work. Additionally, the high level of performance demands — as well as the high level of incentive compensation — create conditions by which private equity professionals are motivated to learn.

In certain other ways, however, the private equity workplace was not found to be a consistently supportive learning environment. Rehman found that individual autonomy was often limited in private equity roles (due to collective decision-making processes like investment committees), potentially reducing individual learning. Additionally, he found that because private equity firms hold their investments for several years before selling them, the results of one’s work may not be as evident in the short term and thus learning takes place more slowly.

Rehman also found that “management support for learning” — a factor that generally leads to more learning by individual private equity professionals — was not consistent across firms. Through interviews with investors, he found that some firms had much more management support for learning than others.

Rehman’s study offers recommendations both to firms and to individuals on how they can make their firm a better learning environment. These include capitalizing on the features of private equity that inherently support learning while addressing those that might hinder it. Firms and individuals can, while preserving the integrity and benefits of investment committee processes, do more to foster individual autonomy and visibility of results. Importantly, they can commit to management support of learning through both formal and informal processes. The outcome would be enhanced learning by private equity professionals and, by extension, better investment returns for the firm.