Human Beta in the Private Equity Executive World

Just like a money manager tailors their investments to create a desired beta in their portfolio, a private equity firm does the exact same, though with something far more complicated than stocks and bonds – with executives. 

All private equity sponsors want to maximize their upside when hiring an executive without taking on unnecessary leadership risk. A private equity firm’s dynamics, resources, support, and investment criteria all play into the need for a high-beta or a low-beta candidate. Neither is inherently better than the other; however depending on the sponsor and the state of the portfolio company, one will always be a more attractive investment in the eyes of the private equity sponsor.

For more, read: How to Become a First-Time Private Equity-Backed CFO

What Are High and Low Human Beta in Private Equity?

Whereas a stock’s beta is calculated from historical movements, an executive’s beta is based on their intangible characteristics. Someone’s energy, thought process, ideas, team building, and leadership methods all play into their beta. Certain qualities hint at what beta a candidate holds, and a private equity sponsor wants to uncover those qualities throughout the interview process.

High-beta leaders are not afraid to put themselves and their careers at risk when taking on new opportunities. They see a situation that most would shy away from and think of it as an opportunity to bet on their own abilities, reshaping the entire situation in the process. A high-beta executive is willing to try things that no one else will think of or others have deemed too far-fetched. These qualities – similar to that of a volatile stock – attract high ris...