Asia trails the West on operational value-add - survey

The results of the survey - published by global advisory AlixPartners following interviews with nearly 100 regional and international GPs across Asia - also said that the industry suffered from a lack of operational professionals with relevant management experience.

In all, 66% of respondents said PE firms in Asia were behind their Western counterparts in value creation. Meanwhile, 64% said they did not have the metrics in place to measure the success of operational-improvement programs. Despite this, 84% said they believed demonstration of previous operational experience to LPs was essential, or at least important, to fundraising.

GPs identified slowing economic growth and industry consolidation as the main reasons why operational value-add has come to the fore. Other reasons included poor operational management within portfolio companies, difficulties in exits and the desire among GPs to build a reputation for their long term development.

While pressure from LPs ranked last as a driver for operational change, the study said its importance should not be underestimated.

In terms of sector, manufacturing is seen as the area most in need of operational focus, with consumer products and industrial products cited by 54% and 50% of respondents, respectively. Retail also scored 50%.

The study added that Asia posed some unique challenges to GPs carrying out operational work due to its patchwork of cultures, languages, infrastructure and regulations. GPs ranked finding talented operations executives as the biggest obstacle, this is likely due to the short history of the private sector in some jurisdictions.

The implementation of operational value-creation strategies is another pressing issue, with 86% of GPs saying their ability to drive change had been limited as they often hold minority stakes in companies. As a result, 61% of GPs said building a close working relationship with founders and existing top management is the most effective means for carrying out improvements.

The survey also made distinctions by geography, with 53% of respondents naming China as the most challenging Asian country for accomplishing operational improvements, followed by India and Southeast Asia.

"Private equity in Asia is entering a new phase in which creating value will need to be through operational excellence, which in turn, will build more-competitive businesses," said Masahiko Fukasawa, managing director and co-head of Asia at AlixPartners. "A crop of private-equity firms is increasingly doing larger deals and coming across more buyout opportunities than a few years ago. These more-complex deals require greater operational expertise, which is challenging for private-equity firms to develop on their own."

• Tweet  
• Facebook  
• LinkedIn  
• Google plus  
• Save this article  
• Send to  

• Topics
• Advisory
• LPs
• GPs
• GPs
• Operating partners
• LPs
• Asia