Global consulting firm McKinsey & Co. has published a study that examines what private equity firms can do to outperform their peers during times of crisis. They examined what high performing private equity firms did during the Great Financial Crisis of 2008-2009 did to achieve outstanding results. The consultants who worked on the project suggested that steps taken at that time could serve as a rod map for private equity firms during the current economic crisis.

McKinsey on Private Equity

One of the most essential steps for a firm to take is the creation of what the authors called value creation teams. This a group whose efforts are focused on improving the operations of portfolio companies to produce higher long-term returns by the business. Firms that had dedicated value creation teams he crisis years, firms with value-creation teams meaningfully outpaced the others, achieving about five full percentage points more in Internal rates of returns RR than firms without teams of specialists focused on the companies the firm owned.

Firms with dedicated value creation teams also had more success in fundraising during the crisis that firms that did not. Their study found that firms with value-creation teams saw fund size rise by 53 percent in the post-crisis years, while those without experienced 15 percent further declines in fund size.

The other trait of top-performing private equity funds was the willingness to buy at a time when the economy was in recession, and valuations were moving downwards. The authors studied 500 PE firms found that those who maintained their capital-deployment rate tended to outperform. Firms that waited until the economy recovered to deploy capital underperformed in the post-crisis period.

You can read the full report here.

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