Private equity firms continue to build and grow portfolio operations teams

After a six-year fundraising low for private equity firms, 2024 has ushered in a new round of closes.

This is a positive development for the industry, which currently sits on a record amount of dry powder that many analysts expect to see deployed this year.

This activity has also sustained the growth of many firms’ portfolio operations teams.

The latest in private equity portfolio operations:

As firms close and deploy new funds, we’ve seen this be a natural time to build or grow their portfolio operations teams, and thus our private equity fund-level recruiting team’s phone will ring.

In a podcast shared by our team last year, we highlighted how portfolio operations teams proved invaluable during the 2023 M&A slowdown; however, the need to quickly and efficiently deliver on world-class value-creation plans for portfolio companies never goes away, so we’re seeing sustained hiring on this front.

Depending on size and scale of a fund, we see a variety of models be successful with the two primary archetypes within private equity operations teams being either generalist or specialist roles.

The five functional areas we saw most often throughout 2023 for specialist roles were finance and accounting; engineering, operations and supply chain; human capital; go-to-market / commercial; and transformation.

Transformation is an especially popular focus area when looked at through the lens of tech and digital, which explains the latest functional spike we’ve seen gain significant traction so far in 2024 among portfolio operations teams.

Increased demand for digital and tech specialists:

In Q1 2024, we saw a spike in private equity firms deploying their operating professionals in driving tech and digital transformations across portfolio companies.

This involves implementing new enterprise systems (ERPs, CRMs, RTPs, etc.) or IT infrastructure as well as assisting with the reporting and data analytics models it takes to ensure their effectiveness.

For many companies, especially lower-middle or middle-middle market portfolios, this can be the first time integrating such systems into their business.

AI plays a major role in all of this as well because its advanced capabilities and emerging integrations with existing business systems provide portfolio operations teams with more opportunities to automate tasks and drive efficiency.

The strategy in which firms deploy these teams differs from organization to organization, but we’ve seen effective firms create repeatable digital “playbooks” that align to their investment thesis and can be repeated over and over across similar portfolios.

Looking ahead:

We saw private equity firms place a heightened focus on building effective portfolio operations teams during the market downturn in 2023. This stemmed from their need to grow and retain value in said portfolios.

Now that deal flow is picking back up, we’re seeing firms continue to build these teams.

Specialist roles among those teams continue to remain popular, with the most recent spike being tech and digital transformation, a key value-creation driver as AI takes hold across companies’ internal operating systems.

We expect this to remain a focus area for private equity firms throughout the remainder of the year.

To learn more about portfolio operations teams, contact Ashlee Wagner at (336) 217-9142 or ashlee.wagner@charlesaris.com.