Ideal Tax Operation

Working with Private Equity Portfolio Companies

Globally, private equity remains an attractive asset class, outperforming public markets over medium to long-term investment periods. However, exactly how these alpha returns are generated remains less well understood. Furthermore, analysing private equity returns by performance quartiles reveals a great deal of variation; from the top quartile funds which produce significant alpha to the fourth quartile funds which actually lose shareholder value. Given this, we can see that the use of ‘value levers’ such as leverage, multiple arbitrage, operational and profit improvement is far from formulaic.

We believe that as private equity finds itself in a more difficult economic environment, it will have to evolve further to meet the challenge of the slowdown of growth in developed economies. This is likely to lead to an increasing role for effective portfolio management, as the value levers of operational and profit improvement become more important. It therefore seems an opportune time to explore how private equity managers add value to their portfolio companies and what characterises the most effective, in comparison with those that are less so. Asking those who have worked closely with private equity, namely senior executives and non-executive directors of private equity-owned portfolio companies, many of whom have worked with more than one private equity investor, seems a good place to start.

We hope you find this research interesting and constructive. The results revealed the many benefits of the private equity model and a variety of approaches to working with portfolio companies. We will leave you with the thought that although some of the findings may seem self-evident, sometimes private equity firms do not always get the basics right when interacting with management and the board. This research should give food for thought and some guidance on what the 300-plus senior managers who took part in our survey believe constitutes best practice in portfolio management.

Views of chairmen and senior management on working effectively with portfolio companies and creating value

Views of chairmen and senior management
on working effectively with portfolio
companies and creating value

Download the full report here: Working with Private Equity Portfolio Companies

David Okwara

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