FINspeak: Private Equity is Transforming Their Own Operations

With a global slump affecting many industries in a dramatic fashion, Private Equity is also undergoing many changes. The pressure first started to show last year when many firms announced asset write downs as portfolio valuations started to fall. This was then followed by personnel cuts (considered a significant event too many in the industry) affecting upwards of 10% of the employee base in some firms. Announcements were then made allowing reductions in Limited Partner investment commitments (it is next to impossible to back out of a LP commitment) and more recently changes in the fee structure itself. While this is not an indictment of a flaw in the Private Equity model, it is simply a sign of PE evolving with the market.

This evolution is also evident from recent COO placements made by PE firms, the most recent being Henry Silverman at Apollo. This COO trend may be restricted to the larger funds since they have the resources to support the position, but it shows how PE is looking to get leaner and operate more efficiently regardless of the firm size. They are demonstrating the same rigor internally as with their portfolio holding investments. In trying to support this transition, Infosys has created customized offerings for research, knowledge management and financial/accounting services to address the unique needs of Private Equity. These services address the full Private Equity value chain from initial market scans to due diligence support through to portfolio tracking or divestment services in addition to back office functions such as fund and carry accounting. These services help PE firms support current operations or even enter new markets in a low cost and low risk manner. One thing is for sure, the leading PE firms will not remain static and I am betting that they come out of the current market slightly shaken, but not flattened. What are your thoughts?