Report: Asian PE GPs Must Create Operational Value

Aug 19 2014 | 12:34pm ET

Private-equity general partners hoping to succeed in Asia must change the way they work with portfolio companies, according to a new survey.

Business advisory firm AlixPartners conducted in-depth interviews with 96 regional and international p.e. GPs in its first survey of p.e. value creation in Asia. The GPs polled managed between $750 million and $5 billion.

The survey concludes that as Asian economies mature, and GDP growth in countries like India and China slows, GPs must do more hands-on work to increase portfolio companies’ operational earnings, as measured by EBITDA.

Market forces were cited as the chief reason operational value creation must come to the forefront, followed by the generally poor or immature operational management of portfolio firms, difficulties in exiting, the desire to build a reputation for the p.e. firm and pressure from limited partners.

A full 66% of respondents said Asian p.e. firms lag their Western counterparts in value creation while  84% believe a demonstration of previous operational experience is essential or important to fund-raising.

Respondents consider manufacturing, industrial products and retail to be the most challenging sectors for operational work and China (followed by India) the most challenging countries.

Most GPs (64%) have no metrics in place to measure the success of their operational-improvement programs.

Despite the challenges in Asia, value creation work has paid off: Only 6% of GPs said their past operational work fell short of expectations.

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