The survey, "Asian Private Equity: Creating Value in Portfolio Businesses", found that regional private equity firms in particular find management capabilities to be a challenge, with 63% of regional firms surveyed saying they always or often find this aspect challenging, compared with 29% for Chinese firms and 20% for global firms.
Over half of the respondents (57%) say that they rarely or never find regulatory compliance as a challenge to improve the performance of their portfolio companies, the survey said.
However, Chinese private equity firms appear more likely to be challenged by regulatory issues than their global and regional counterparts, with 57% of Chinese firms saying they sometimes find regulatory issues a challenge, compared with 40% of global firms and 38% of regional firms.
The survey also found that the two most common ways of dealing with performance issues in portfolio companies are for the business to be refocused or for management to be replaced, with 90% and 70% of firms, respectively, claiming that they had taken these intervention measures over the last three years.
Chinese firms are less likely to replace management than Regional or Global firms, with only 57% of Chinese firms saying they had replaced management to resolve issues in the last three years, compared with 75% of regional firms and 73% of global firms.
The survey found that majority of private equity firms (70%) believe that more than half of their portfolio companies are not performing as well as they could be.
When considering the portfolio companies which have the potential to materially improve, private equity firms said they were actively working with an average of 82% of them to drive performance improvement.
While the overall average was relatively consistent by category (Regional 84%, Global 83% and Chinese 78%), there was more consensus amongst Regional firms on this point, with 100% of Regional firms saying that they are actively working with more than half of their portfolio companies, compared with 80% for Global firms and 71% for Chinese firms.
A&M’s business in Asia managing director and head Oliver Stratton said as numerous corporate and macro-economic events have shown this year, being able to identify and address performance issues and potential problems before they escalate is not something which can be taken for granted.
"In Asia, this is further complicated by the varying business and regulatory landscapes across the region," said Stratton.
Overall, 60% of respondents said that they have increased (37% significantly) their level of intervention in portfolio companies over the last three years.
When working to improve the performance of portfolio companies, 93% of private equity firms always provide guidance through their internal PE investment professionals.
Of the private equity firms surveyed, 43% said they had achieved more success working solely with existing management, while 47% said that a combination of working with existing management and replacing or augmenting key roles brought them the most success.
Regional private equity firms were most in favor of short-term interim management, with 88% saying they saw value in deploying resources in these roles, compared with 71% of Chinese firms and 60% of global firms.
Among those surveyed, Chinese firms’ portfolio companies appear to have performed best in the last three years, with an average of only 12% of their portfolio companies having experienced significant performance issues and financial distress, compared with 29% for global firms and 31% for regional firms.
