How do private equity firms act on the performance of their portfolio?

We have surveyed a panel of pan-European PEs, including active/passive and minority/majority shareholders, and on average ~70% are satisfied with the performance of their investments. Below are the key findings:

• Reasons for dissatisfaction are linked to strategy, management teams and operations;
• Capital control and involvement in operations make a difference.

Active majority shareholders tend to be satisfied (after 3 years) quicker than passive majority PEs. To meet perfomance expectations, all PEs have reported their need for more operation analysis before transaction and more supervision of execution after the deal. Based on their involvement in operations we have identified 3 PE models. 

New topics of investigation are coming to the front:

• For 53% of our respondents, ESG is either included in the DD package or is embedded in their DNA, through their internal policy rules;
• 14% have mentioned cybersecurity risks. However, this topic is expected to shift towards the top of priorities as it is already gaining traction in regulatory audit works.

With more topics on their plate and the realisation that being involved in the management of their investment matters, PEs are left with 2 choices to increase performance:

• Developing in-house teams with either such specialists as operating partners, ESG managers or more hands-on participation executives; 
• Or the involvement of specialised external advisors.