May 8, 2024 - Business

Private equity's top returns may be tied to CEO empathy

Animated illustration of a zippered-mouth emoji on top of an org chart. The zipper unzips, the emoji thinks and then blurts out a word balloon with a gold star in it.

Illustration: Brendan Lynch/Axios

"Empathy" isn't a word that comes up much when discussing private equity, but it might be the difference between meeting and crushing the benchmark.

The latest: That's the working thesis at global private equity giant KKR, despite its history of being the original barbarians at the gate.

The big picture: KKR operates what it calls "Centers of Excellence," including one focused on human capital.

  • One of its goals is to learn how to identify great leaders, whether current CEOs or future CEOs, for the sake of driving outsized returns.
  • The focus is more on psychological traits than on resumé.

Behind the scenes: What KKR has discovered so far is that having a genuine sense of empathy might be the key identifier, according to Pete Stavros, KKR's co-head of global private equity.

  • For example, does the person exhibit a sense of responsibility not only for shareholders and top executives, but also for the most junior of employees. In other words, a north star of: "My people, my problem."
  • Other signals could include a company's safety record or employee engagement scores.

The bottom line: This might sound squishy, particularly to spreadsheet obsessives, but private equity might be one of the last industries to recognize the primacy of corporate culture. And how that culture can beget capital.

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