While private equity funds in Asia believe they have relatively advanced operational improvement programs, many of them lack basic structures to measure performance in their portfolio companies, according to data revealed at PEI’s Value Creation Forum 2014 this week.
The exclusive findings by PEI’s Research & Analytics division and consulting firm AlixPartners showed about 60 percent of the 96 private equity funds surveyed described their operational programs as “mature”.
In contrast however, 64 percent of firms said they do not even have a structured way to measure key performance indicators, Masahiko Fukasawa, managing director and co-head of Asia at AlixPartners, pointed out to delegates at the event in Shanghai.
Moreover, respondents agreed that Asia is behind other markets when it comes to value creation – 41 percent believing the region is slightly behind, with 25 percent saying it is far behind.
While about one-third of respondents said that Asia matches the rest of the world, 85 percent of the GPs surveyed still believe that the ability, in most cases, to invest only in minority positions hinders their ability to drive operational improvement.
Speakers at the forum emphasized the increasing value of operational improvement in private equity, with Michael Thorneman, managing partner at Bain & Company, opening the conference with statistics indicating that an increasing number of GPs are focusing on value creation.
For example, Bain data showcased at the event indicated that Chinese GPs are planning to increase headcount in their operational teams by about 30 percent on average over the next two to three years.
However, Thorneman agrees that firms are not finding it easy.
“Private equity funds are now building up their operational capabilities, but it is difficult to find the right model,” he explained.
“Almost every firm says that this is one of their differentiators and they are focusing on it, but I think it is fair to say that not too many funds have really cracked it, really offering up a repeatable model for having the right value creation process, team and capabilities in-house or externally.”