February 2021
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AAM Magazine
February 2021
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PE Panorama: Asian private equity investors focus on business transformation

Private equity
By Paul Mackintosh   
February 22, 2021

The first Oliver Wyman, Marsh and Mercer Asia Private Equity Survey released at the end of January polled over 40 funds operating in Southeast Asia, Hong Kong and China, to gauge their priorities and perspectives for the year ahead. The results are provocative, but not necessarily encouraging.

For one thing, all the respondents said they had either begun to formulate post-Covid-19 recovery plans for their portfolio companies, or already started them. Only 16% were still at the thought stage, while 52% had their plans well developed, and 32% had already implemented them. With those plans put in train, 41% of respondents said they would make no change to their current metrics and goals, and a further 43% said they would adjust their short-term targets but not their longer-term goals. Only 14% felt the need for a full reset.

All well and good then? Well, not exactly. Although clearly sanguine about their own financial targets and returns prospects, the general partners polled had apparently ramped up their commitment to certain critical business transformations as a result of the coronavirus crisis. Some 60% of respondents said they now saw digital transformation as key for their portfolio companies in the post-Covid-19 era, but only a minority felt they were capable of delivering those transformations from their own resources, in digitising internal operations and interactions with customers.

The majority were also looking to make changes in their portfolio company workforces. Two-thirds of respondents were looking to improve workforce productivity through artificial intelligence and automation and 55% were planning to restructure or reorganise portfolio company workforces. Teleworking and other flexible working arrangements were priorities for 48% of respondents.

Also, the majority of respondents were not satisfied with the alignment of portfolio company workforces and leaders. Nearly three-quarters of them reported organisational cultural alignment as one of the main barriers to value creation at their investees, and 70% cited similar divergences of attitude with their investee leadership.

Private equity firms in Asia are apparently more focused on value creation plans than ever. Some 77% of respondents said that such plans were now very important in their Investment committee assessment process before executing on deals, and a further 18% said that such plans were somewhat important.

Hands-off investment was rarely ever a realistic proposition for private equity firms anywhere, and least of all in Asia. That seems truer than ever now in the post-Covid-19 environment. The macroeconomic and business landscapes are transforming faster than ever, and private equity firms in Asia are clearly aware that they need to be at the leading edge of the change. There is no such thing as business as usual any more.