Private Equity Portfolio Operations

The Real Value of a Private Equity Portfolio Operations Team

Private equity portfolio operations teams are becoming a cornerstone for firms that focus on driving real, measurable improvements in their portfolio companies. Instead of relying solely on financial engineering, these teams are tasked with implementing strategies that accelerate growth and strengthen performance.

What Is a Private Equity Portfolio Operations Team?

Portfolio operations professionals often come from investment banking or management consulting. Private equity firms deploy them in one of two ways:

• Across multiple portfolio companies to advise on and lead value creation initiatives.

• Embedded in a single portfolio company to execute a tailored playbook for growth.

Not every firm has a dedicated portfolio operations team. For smaller or newer funds, these responsibilities may fall to the investment team, particularly in a firm’s first or second fund. However, for firms that already understand common portfolio company challenges, have clear hiring preferences and need the deal team focused on sourcing and closing investments, portfolio operations can be a powerful differentiator.

Three Key Portfolio Operations Archetypes

On the investment side, firms often hire former investment bankers. On the portfolio operations side, the talent pool is broader, but generally falls into three common categories:

• Ex-CxO Advisors: These are seasoned executives with multiple successful exits, typically working in an advisory capacity. They may split time across several portfolio companies, lending their experience to high-impact initiatives.
• Functional Experts: These specialists have deep expertise in a specific area, such as go-to-market strategy, finance (office of the CFO), supply chain, digital transformation/AI, procurement, pricing or talent acquisition. They are brought in to solve recurring, high-priority challenges.
• Generalists: Often former management consultants, generalists have experience working across industries and tackling complex business problems. They can adapt the same value creation framework to a variety of situations while staying agile in the face of new challenges.

The most important decision in portfolio operations hiring is whether to prioritize functional experts or generalists. Some firms prefer a mix, while others build around one type. The right choice depends on the firm’s operational goals and the problems it needs to solve.

When to Build a Private Equity Portfolio Operations Team

A private equity firm should invest in a portfolio operations function when three conditions are met:

1. The deal team is too busy sourcing and closing deals to focus on value creation.
2. The firm has a strong understanding of the most common operational challenges in its portfolio.
3. The leadership team knows the exact talent profiles needed to address those challenges.

In a first or second fund, the deal team often still manages value creation directly while refining the investment playbook. By the second or third fund, when the deal pipeline is stronger, capacity becomes a constraint. At that point, creating a dedicated portfolio operations function can improve execution and results.

Examples of Operational Challenges

Lower middle market: Companies often need more structure and professionalization, such as hiring a CFO, standardizing commission plans, or optimizing supplier relationships.

Upper middle market: More mature companies may face larger-scale initiatives, such as implementing a company-wide ERP system, rolling out Lean Six Sigma across manufacturing, or consolidating distribution networks.

The operational issues you prioritize should directly match the skills and experience of your portfolio operations hires.

Do Portfolio Operations Professionals Earn Carried Interest?

Increasingly, yes. Even at the associate level, portfolio operations professionals are starting to receive carried interest as part of their compensation. This shift reflects the growing demand for their expertise and the industry-wide move toward operational value creation as a primary driver of returns.

Key Takeaway

As private equity firms evolve, portfolio operations teams can maximize portfolio company value. By hiring the right mix of talent and aligning them with clearly defined operational goals, firms can unlock significant value and position their portfolio companies for long-term success.