Coming out of a period of unprecedented turmoil, industry executives are focusing on achieving enterprise value milestones, meeting top-line growth goals, and protecting margins. They are also increasingly aware that those financial goals cannot be achieved with business-as-usual approaches. Talent and leadership are increasingly taking center stage in the pursuit of creating value. At the same time, however, many in the industry are uncertain about the best ways to attract, retain and deploy the leadership they need.

Disruption remains the name of the game, puts different pressures on leadership, and calls on different human capabilities.

While talent recruitment, development and retention have remained both a challenge and a priority for PE executives and portfolio company leaders, survey respondents cite meeting milestones for enterprise value growth and accelerating topline growth among their biggest challenges for the year ahead.

Relationships between PE executives and portfolio company leaders overall are positive and constructive:

Almost all PE respondents report their relationships with their portco execs are the same or better as compared to the last three years

The vast majority of portco respondents report PE investors' impact on their business performance has stayed the same or improved over the last three years

PE survey respondents cite driving topline growth (56%) and meeting growth milestones (64%) among their biggest challenges for the year ahead.

But masked by the positive feedback are areas for improvement:

PE respondents cite a lack of urgency, unfocused execution strategies, and a lack of flexibility as the top three drivers of poor CXO performance

Portco respondents cited a lack of operational expertise, a clash in working styles, and insufficient capital as the primary challenges when dealing with investors over the last 12 months

KEY FINDING #1

Execution is job one. Performance pressure eased during the COVID-19 pandemic and as companies struggled with the transition to higher inflation and interest rates, but it’s pedal to the metal now: both portcos and PE firms say performance is the priority, and the presence of a large number of underperforming assets shows that the industry has a performance problem.

KEY FINDING #2

Significant areas of misalignment between PE firms and portcos—many of the issues having to do with leadership—create conflicting leadership agendas that could derail value creation plans.

KEY FINDING #3

Despite the PE Firms and portcos’ differences, underlying relationships between PE firms and portcos are generally positive and constructive. They have a sense of shared expectations and ownership, and the essential state of the union between investors and portcos is strong.

KEY FINDING #4

Though both parties say leadership is the key to sustained value creation, the PE industry is not taking steps to produce sustained leadership excellence. Key talent development practices are not widely followed, and best practices not agreed upon; most of the industry manages talent in transactional and traditional ways.

KEY FINDING #5

Technology—artificial intelligence in particular—is disrupting PE industry business models and reshaping the leadership agenda, with implications for where value is being created in organizations and by whom.

KEY FINDING #6

There is a critical need for PE firms and portcos to build on the strength of their relationship and work together more urgently to develop stronger change capabilities—tactically, strategically, technically, and culturally. Portcos in general need more operating support earlier.