Hopehead Talking Points: Why is C-Suite referencing so often private equity’s neglected lever?
The private equity industry continues to sit on a historic mountain of unsold assets. Across Europe and North America, investment funds are holding companies for longer than their traditional models ever anticipated. Higher interest rates, broader economic uncertainty, and wide gaps between what sellers want and what buyers will pay have clogged the traditional exit channels. Yet, while industry conferences endlessly debate financial restructuring and continuation vehicles, many mid-market firms are overlooking a practical tool within their direct control - one that could significantly improve their chances of selling businesses on time and at an attractive price.
Research by executive search firm Russell Reynolds Associates in The CEO Decision: How PE Investors Select and Reassess Leaders from Entry to Exit shows that the choice of chief executive directly influences how quickly a sponsor can exit an investment. Getting that hire right early on dramatically speeds up the process. Conversely, misjudging leadership talent triggers a cycle of delays that leave companies stranded in fund portfolios.
The upshot: bringing deeper, investigative due diligence to the CEO hire is a genuine competitive advantage for mid-market firms struggling in a sluggish market.
The reality behind the numbers: Big deals mask a quiet freeze
Glance at recent market commentary and you could be forgiven for thinking private capital has turned a corner. Headline disposal values have ticked upward, but the reality beneath those totals tells an entirely different story.
Reports published in 2026 in the Bain & Company Private Equity Insights and the McKinsey & Company Private Capital Insights reveal that this apparent recovery is distorted. The jump in headline value has been driven almost entirely by a handful of multi-billion-dollar transactions - large corporate carve-outs, giant infrastructure assets, and direct sales between mega-funds.
Behind those figures, the actual number of completed sales remains historically low. As noted in the McKinsey report, overall deal counts remain well below historical ten-year averages. Meanwhile, the analysis from by Bain & Company shows an inventory backlog of roughly 32,000 to 34,000 buyout-backed companies. This represents nearly $4 trillion in unrealised value stuck in fund portfolios. More than half have been held for four years or longer, pushing the average hold period toward seven years.
This slowdown hits mid-market private equity especially hard. The larger buyout funds that once routinely bought growing mid-sized platforms are wrestling with their own backlogs and higher debt costs. They are staying on the sidelines unless an asset is performing flawlessly.
The Real Cost of Leadership Turnover
To examine how leadership choices affect ownership timelines, Russell Reynolds Associates tracked roughly 200 European private equity sales completed by funds managing over €5 billion Their findings challenge the assumption that changing a CEO is always disastrous, pinpointing instead where the damage actually occurs:
Turnover is routine: Around 69 percent of portfolio companies replaced their chief executive at least once during the investment, according to the report.
A single change carries minimal penalty: Deals involving a single, early, planned CEO transition averaged an exit timeline of 5.8 years. This is barely different from the 5.5-year average when the existing chief executive stayed in place, as highlighted in the same source.
Repeated changes are devastating: In 25 percent of deals where a change happened, the sponsor had to replace the CEO more than once. With a second CEO replacement, average hold times jumped to 8.5 years, and for companies that cycled through four leaders, hold periods stretched to an average of 11 years, according to data from the report.
A single, deliberate CEO change does not derail an investment. What quietly destroys returns is the compounding disruption that comes from getting the initial (and subsequent) choice wrong.
The Informal Meeting Trap and the "PE Pedigree" Myth
Why do investment teams who spend months combing through accounting records, legal contracts, and tax filings tend to misjudge the person in the top job?
Russell Reynolds found dealmakers admit privately that they tend to overestimate their own ability to evaluate leadership. Because most investment professionals come from finance and banking rather than operational backgrounds, they evaluate candidates through dinner meetings, formal presentations, and structured interviews. While these settings are helpful for establishing rapport, they reward polished communicators and say very little about how someone handles operational crises or managing cash under pressure. Perhaps more importantly, this method of recruitment does not provide any view of the candidate from below.
Yet the factor that truly made a difference in CEO success was deep, sector-specific operational experience. More than 75% of successful outside CEOs were hired directly from the target company’s industry, and nearly two-thirds had already run a business in that exact space. Hiring a generalist with an investor pedigree over an industry veteran who understands suppliers, pricing models, and customers frequently backfires. And, with the greatest of respect to the hirers, they are probably not the best people to drill into the warp and weft of that deep industry experience.
De-Risking the Hire with 360-Degree Intelligence
Informal dinners and nominated references have a valid place in recruitment; they build rapport and ensure a candidate can work collaboratively with an investor. But no candidate ever offers a referee who will give a less-than-positive review.
To build a complete picture, firms need independent, 360-degree referencing that speaks to former peers, colleagues and subordinates as well as the more traditional raft of superiors (CEO, chair or NED):
Testing performance under pressure: Natural conversations with former direct reports reveal how a leader communicates, manages teams, and handles adversity when unexpected operational shocks occur.
Evaluating industry know-how: Speaking to former colleagues who have years of experience working with a candidate can really show the full extent of their sector skills not to mention their wider connections and how good they are at leveraging those.
Fixing structural weaknesses early: Rigorous background referencing does not just filter out poor candidates; it maps out the operational blind spots of successful ones. If a gifted commercial CEO is weak on supply chains or cash controls, the investor can build support around them—pairing them with a seasoned COO or finance director before small gaps become major problems.
The Takeaway
Mid-market private equity firms face tough macroeconomic headwinds they cannot control. But they can control how rigorously they evaluate leadership.
The evidence compiled by Russell Reynolds is clear: replacing an ineffective CEO a second or third time can have a dramatic effect on investment timelines. By adding thorough, independent leadership due diligence alongside their usual financial audits, mid-market funds can have a greater chance of choosing the right leader early on which saves time (for the business and the Operating Partner) and money (severance, recruitment fees and swifter path to exit).
