Thought Leadership
Private Equity’s New Frontier of Value Creation
Harvard Business Review
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The structural decline in private equity returns...
- As the 50-year-old private equity industry matures, investment returns are falling.
- Decline of six percentage points between the 10-year annualised return in 1999 and the comparable return in 20191.
...Due to the reduced effectiveness of traditional tools for generating performance...
- Financial levers (leverage & multiple arbitrage): less potent than in the past and harder to control.
- Operational levers (margin & growth): harder to achieve.
...Calls for a novel approach to value creation.
- The new frontier of value creation is to design and manage private equity portfolios as a business ecosystem.
- We are developing a proprietary “system” that leverages linkages between selected portfolio companies to unlock new and significant value, maximising value creation.
(1) Source: 2020 study by Hugh MacArthur, Josh Lerner and State Street Global Markets & State Street Private Equity Index.