Re-writing the value creation playbook: How private equity investors can build resilience and drive growth in today’s market
Senior Managing Director of Private Equities Erem Kassim-Lakha shares insights on how active managers can work with portfolio companies to create value.
At a glance
- Shortcuts to unlock higher returns are increasingly rare, so it’s up to investors to help create them.
- Hyper-globalization, lower productivity, rapid AI growth and a push to zero-carbon are making this one of the most challenging environments for private equity since the global financial crisis.
- To make our portfolios more resilient, we've been laser focused on the micro – ensuring the key value-added actions are in place across our portfolio, such as working with management to identify and scope the best opportunities to drive value through new digital technologies, like AI.
- Our value creation teams work as equal partners alongside our deal teams to foster better dialogue and unlock value.
Unlocking value through collaboration
With the days of cheap leverage and lower interest rates seemingly behind us, “shortcuts” to high returns are increasingly rare. Against this backdrop, investors are realizing that their best chances for success may lie not in chasing returns, but in helping create them.
How are investors building resiliency within their portfolios? What roles do operating partners play in a value creation environment? Recently, Erem Kassim-Lakha, our Senior Managing Director of Private Equities for Europe, the Middle East and Africa (EMEA), joined a panel discussion at Private Equity International’s Operating Partners Forum in London to discuss the challenges and opportunities to support portfolio companies in building greater resilience. Below, find a summary of her remarks, including her insights on trends in private equity and Ontario Teachers’ value creation strategies.
What does the private equity landscape look like today?
Erem Kassim-Lakha: We see a confluence of several trends which have been impacting private equity investing environment since Covid, making this period one of the most challenging since the global financial crisis: higher inflation and interest rates first and foremost, the end of hyper globalization and hypergrowth putting stress on the top line and supply chains, lower productivity in many large economies, the rapid rise of AI and a push to zero-carbon.
From a private equity investing perspective, our approach is all about how we can help drive underlying profits and position our businesses for long term success. We’re putting the focus on scaling up our efforts across asset classes to help our portfolio companies better compete in this environment. As active managers, this involves working more closely than ever before with portfolio companies to identify and deliver this performance.
How is Ontario Teachers’ enhancing resilience across its portfolio?
EKL: At Ontario Teachers', we've been laser focused on the micro – ensuring the key value-added actions are in place across our portfolio. For us, this means doing three things really well.
First, active joint problem solving between operating partners (value creation teams), deal teams and management is critical to unlocking value with greater speed. Everyone is clear about who is digging into which parts of the portfolio and what short- and medium-term actions are being driven in collaboration with management teams. Our value creation efforts deploy a “demand pull” model with deal teams and management teams. In the current environment, the value creation teams are certainly getting pulled in, and we look at resource allocation regularly with our deal teams to ensure we’re collectively focused on the biggest bang for our buck and where we may need to leverage other resources if required (whether across Ontario Teachers’ enterprise or external).
Second, we’re taking active steps to have the right management teams and board talent in place to anticipate and cope with multiple continued headwinds, supporting our overall value creation agenda.
Lastly, there are some innovative opportunities to drive value through new digital technologies, like AI, which we’re experimenting with as we help shape our portfolio companies for the future.
Integration of efforts and good problem solving between deal teams, value creation teams and management is critical to deliver the desired results.
How does Ontario Teachers’ collaborate with its portfolio companies?
EKL: Integration of efforts and good problem solving between deal teams, value creation teams and management is critical to deliver the desired results.
Compared to my previous roles at General Partners (GPs), value creation teams at Ontario Teachers’ are viewed as part of the deal team and introduced at the onset as one team. They sit with deal teams and sector teams on the floor and communicate regularly. Value creation teams are not viewed as the “people in the corner” as they were several years ago in other places, but as equal partners alongside the deal teams. Success and failures are considered joint, and we have the same compensation systems to ensure we’re fostering better dialogue and actions.
The other thing to note is that a lot of investors today weren’t necessarily investing during previous recessions, so they don’t necessarily have the innate experience of addressing multiple headwinds we’re seeing now. So joint problem solving is vital for experience sharing.
How do you structure your teams to ensure you have the right expertise?
EKL: As an organization with a fiduciary responsibility to service the teachers of Ontario, we have small fit-for-purpose investment teams and pull in experts from various ecosystems where we need to. The value creation team is a team of generalists. Most lean into one of our major sectors, while others have important specialist skills such as cost efficiency or digital marketing skills. For an existing portfolio company, the value creation team supports management to identify and scope the key areas of opportunity and then guides them in the delivery with agreed KPIs.
For new deals on the way in, value creation supports the deal team to pressure test the areas of opportunity that are being underwritten. The value creation team is a small, senior team and we will lean on trusted experts and advisors to help management teams in specific areas where expert functional knowledge and/or extra bandwidth is required for a given portfolio company.
