PE value-add programs still at early stage in Asia - survey

The survey - published by AlixPartners and based on responses from around 100 global and Asia-based GPs - found that only 37% of GPs consider their operational programs to be mature, compared to 58% last year. Nearly half described their programs as early stage, up from 27% in the 2014 survey. AlixPartners said this is "perhaps an indication that they're becoming more aware of where they're falling short or that they recognize the scale of the task at hand."

Half of respondents said the need for operational improvement in Asia is more significant than in North America and Europe, although the gap is closing. At the same time, 59% are of the view that GPs in Asia trail their Western peers on value creation.

"While awareness of the importance of operational value add is growing, many PE firms in Asia are only just starting to implement such changes," Steve Maurer, managing director at AlixPartners, said in a statement. "Not many GPs in China, for example, have actually achieved successful operational turnarounds. A big obstacle is that most investments in China remain minority stakes, which makes implementing change harder."

However, the inability to implement operational improvement was only the third most frequently cited reason for underperformance in Asia. More than one third of survey respondents identified inadequate management teams as the key factor, while 25% cited ineffective strategy or execution.

Finding experienced people to conduct operational work is seen as the most challenging aspect to value creation work in Asia, followed by getting aligned with management, and the cost and time of getting involved in operational matters. China, India and Indonesia are by some distance regarded as the most difficult markets in which to implement operational improvements in portfolio companies.

In the past, PE firms have tended to focus on improving financial management and sales force effectiveness, generating additional revenue from existing customers, and strategy market and customer research. Revenue enhancement, cost reduction and working capital management continue to be regarded as the most important tasks in the value creation process.

Eight in 10 respondents have dedicated operating partners and a similar proportion plan on adding resources in this area over the next 24 months - one third through in-house hires. As it stands, 60% have in-house operating teams, 32% rely on external advisors, 29% have generalist operating partners, 22% have functional operating partners, and 18% take the executive-for-hire approach.

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