How private equity is shaking up the demand for power talent

When we analyse hiring trends in the power markets, it is interesting to look first at the physical side of the market, and the way in which the arrival of private equity firms is shaping the demand for talent.

Power generation and transmission businesses in the utility and independent power project (IPP) sectors are facing more and more issues as a result of the drop in power prices. The physical power markets, particularly in the US, have been dramatically affected by the advent of cheaper natural gas, growing renewable energy generation and supplies, and an overall drop in demand. As such, many of the larger utilities and IPPs have put assets up for sale, as is the case at NRG, Calpine, AEP and Dynegy.

As these businesses shed assets, private equity players have moved in to snap them up, with competition between both energy-focused and well-resourced larger generalist funds. Both have billions of dollars reserved specifically for energy-related transactions, where they see huge opportunities going forward, and they are taking on assets for relatively cheap prices.

With these generation and transmission assets now increasingly in private equity hands, we see these firms now commercialising and developing trading platforms in order to take advantage of the volatility that comes with physical involvement in the power markets. Historically, private equity firms have chosen to outsource trading, but as they expand their asset holdings, more and more firms are now establishing in-house trading functions.

This shift has a significant impact on where the demand for trading talent is coming from in the power space. There has been a drop-off in demand from the utilities and merchant generators, who have hedging teams in their commercial groups that they will likely continue to use to manage their asset portfolios. But in these businesses, there is a consolidation of trading desks occurring, or at best static growth. Where they are looking to hire, instead, is to develop their retail sales side, selling directly to commercial end-users, where they hope to achieve more consistent base-line growth while assuming lower risks.

On the trading side, it is the hedge funds and merchant trading businesses that have more appetite for risk and are looking to hire the more speculative trading talent. We see these firms developing partnerships with private equity, or with generators, who wish to outsource their trading functions. Physical traders with in-depth, hands-on experience in managing and hedging assets can prove to be quite valuable to private equity firms, and some big names are hiring physical trading teams.

The role landscape for power professionals is certainly changing. Many candidates from purely speculatively-driven trading environments are showing more and more interest in going over to private equity, but for now the most hiring of these traders is taking place with hedge funds and other merchant trading platforms, who see volatility in the markets as an opportunity.

For candidates, the best advice is to be clear on your niche, your risk appetite, your trading philosophy and the market you are most adept in. With so many players seeking to hire different skillsets, now is not the time to be generalist in power.