Received wisdom holds that making money in private equity hasn’t been especially hard over the past decade. Now, as the macroeconomic climate sours, firms with genuine value creation capabilities may separate themselves from those who’ve coasted along on favourable market tailwinds. 

It’s little surprise, then, that some GPs are bolstering their operational resources ahead of a potential downturn. Central and Eastern European specialist MidEuropa is among them. “What we’ve been doing is investing in our operating capability,” says managing partner Robert Knorr, noting that the firm’s operating team is five-strong.

“It includes some operating generalists,” says Knorr, “but also some specialists like digital and sales, or procurement specialists who actually help the portfolio companies [and] our management teams to create operating value, which is obviously much more sustainable throughout cycles and will be sustainable through even stagnating [economies]. [When] you cannot get some boost in your returns and value creation through expansion in multiples or through optimising leverage, you have to do it through operating improvements.”

New priorities

Talent management will be at the heart of private equity’s ability to weather the coming economic storm. In October, respondents to affiliate title Private Funds CFO’s Private Funds Leaders Survey 2022 – conducted in partnership with MUFG Investor Services – named talent the most important operational lever for the second year in a row, and found that the importance of optimising human capital has only increased as labour markets tighten. Of the respondents, 60 percent placed talent among their top three value creation levers this year, up from 46 percent in 2021.

Tech integration was also high on the list of priorities, with 32 percent of respondents saying a digital lens is critical. “On the business side, there’s an ongoing broad trend to automate a lot more… business processes,” notes Ignacio Jayanti, chief executive of New York-based mid-market firm Corsair Capital. “There are trends around making payments more efficient, and there’s obviously growing cyber threats and the continuing presence of identity, protection and security, which has been and will remain a very significant sort of secular theme.”

– Graham Bippart, Robin Blumenthal, MK Flynn, Craig McGlashan, Andy Thomson and Chris Witkowsky contributed to this report.