Private Equity Investing 2018: Rethinking the Private Equity Investment Model to Build Value

Abstract

Private equity investing, especially in the middle market, has never been hotter. Market conditions are ideal, and fundraising is at historic levels. Despite this appearance, however, actual results suggest that something is wrong. Portfolio companies are not hitting their expansion targets, with many deals failing even to recover their initial investment. Making it on the “front end” by outsmarting the market or finding that truly undervalued company and watching it appreciate over time, may no longer work. The “leverage” game may very well be over; it is certainly not a safe bet going forward. Rather, to continue to bask in significant investment returns, private equity investors need to make it up on the “back end” by working their deals and, in many instances, anticipating and managing problems quickly. In short, the private equity investment model needs to change, with investors taking a more “active” role in improving the performance of their portfolio companies. There are several steps that investors should adopt which, when implemented, can help private equity investors enhance results and reach return targets.

TOPICS: Private equity, equity portfolio management, portfolio construction, performance measurement