Asia survey highlights management issues

The majority of private equity firms in Asia believe that more than half of their portfolio companies are not performing as well as they could be, according to a survey report by Alvarez & Marsal (A&M), a business advisory service firm.

The point was made by 70 percent of private equity firms surveyed, according to the report “Asian Private Equity: Creating Value in Portfolio Businesses”.

The survey also found that the biggest challenge for regional private equity firms is finding capable management for portfolio companies. Among those surveyed, 97 percent said they are challenged by the management capabilities at their portfolio companies. 

Regional private equity firms in particular find management capabilities to be a challenge, with 63 percent saying they always or often find this aspect challenging, compared with 29 percent for Chinese firms and 20 percent for global firms.
  
The two most common ways of dealing with performance issues in portfolio companies are for the business to be refocused or for management to be replaced, with 90 percent and 70 percent of firms respectively claiming that they had taken these intervention measures over the last three years.

Chinese firms are less likely to replace management than regional or global firms, with only 57 percent of Chinese firms saying they had replaced management to resolve issues in the last three years, compared with 75 percent of regional firms and 73 percent of global firms.

Regulation across the region had a lower level of concern, despite the varying and often changing regulatory environments. Private equity firms were less concerned with regulation than any other factor when trying to improve the performance of their portfolio companies, with 57 percent of respondents saying that they rarely or never find it a challenge. 

“As numerous corporate and macro-economic events have shown this year, being able to identify and address performance issues and potential problems before they escalate is not something which can be taken for granted,” said Oliver Stratton, managing director of A&M’s business in Asia. 

“In Asia, this is further complicated by the varying business and regulatory landscapes across the region.”