PE Operating Teams Matter During Recession (Little Support Otherwise)

A report by McKinsey & Company states that private equity firms with dedicated value-creation teams (teams that work on the companies in the portfolio exclusively, and not on sourcing, due diligence and transactions) did not manage to outperform peers by a significant margin during regular cycles. Per the article, the return differences were only slightly improved leading up to 2008 and even more negligible from 2014 to 2019.

But these teams did seem to add real value during a recession: 

During the recession, however, McKinsey found that firms with value-creation teams “meaningfully outpaced the others, achieving a full five percentage points more in IRR (23 percent) than firms without portfolio-operating groups (18 percent).”

Having an operations focused team also had a terrific impact on marketing efforts post recession. "McKinsey reported that average fund size declined 19 percent for these firms, versus an average decline of 82 percent for private equity firms without value-creation teams."

Source: Amy Whyte | “What Worked for Private Equity in the Last Downturn” | Institutional Investor | 4/16/2020 | Visit

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