Few topics are debated as constantly in private equity as the right way for a fund to increase the value of its direct investments. We advise funds on candidate types, organisational models and processes, and we’re always struck by how even seasoned professionals wrestle with it. Legal and tax considerations aside, that’s mainly because there’s no ideal solution.
When choosing the “right” model, keep the following in mind:
There are several models, and which one fits depends on the fund’s culture, the investment phase and the roles of the partners and directors.
They should be chosen and adapted to the situation.
Cross-cutting topics such as digitalisation, ESG and pricing are playing a growing role across all assets.
Deal managers rarely have operational knowledge and often have to rely on what operational management tells them.
Many things can’t be understood through KPIs alone. Investors often puzzle over why certain processes take so long or why there’s no visible progress.
Conversely, many executives with operational experience at holding level lack sufficient experience in financial modelling and in executing acquisitions, expansions or exits.
Many senior advisors don’t have the time for intensive detailed work, or can’t properly judge the opportunities and risks of digitalisation, e-commerce or digital marketing.
The all-rounder who can do everything doesn’t exist. There are rare exceptions, but they can’t be replicated.
The culture of the private equity firm itself plays a far bigger role than most people think.
It’s a field full of competing objectives and different approaches.
In the coming articles, we’ll look at the different models, their pros and cons and the candidates available. We focus purely on the organisational, process and people side of the topic and leave tax aside.
