A newly-published survey has found that private equity firms will need to play a more proactive role in the performance of portfolio companies if they are to adapt to the joint pressures of economic slowdown and a maturing private equity sector.
The survey states that private equity investment is still largely based on 1990s business models. It suggests that such models succeeded as a result of rising stock markets, availability of debt and benign economic conditions, factors which have not been evident of late.
With regard to portfolio management, the report found that private equity houses are able to recognise difficulties within investee companies but are not always capable of providing the necessary expertise to solve potential crises. The report attributes this to a lack of business expertise at private equity firms, where the emphasis is placed on investment knowledge over business experience.
The report, carried out by KPMG's private equity group and Manchester Business School, sought the opinions of 24 leading European private equity houses with combined capital under management of £57bn.
Commenting on the research, Oliver Tant, head of private equity at KPMG said: “Too often PE houses find out things are going wrong too late and then are unable to do anything about it. Spotting issues sooner and responding proactively will enable PE houses to protect and create value more effectively. Those houses positioning their strategy early in this direction are likely to have a performance advantage. This in turn will add to the house’s ability to attract both capital and deal flow.”