Great article, Auren. After 2 PE exits, I can confidently say that the financial engineering part is contributing lesser than actual performance improvements towards driving value; PEs are realizing this and investing in operating partners for their expertise in helping portfolio companies get better outside of a spreadsheet.
Of course lots remaining to be done. I’m currently working on a startup that is designed to help PE companies run their software business more effectively, in a way that they won’t be able to go back to their old ways once they see it.
If true, how do the PE firms make money? Is the hypothesis that LPs are throwing away billions investing in PE firms that won't drive returns based on historical norms that won't be repeated? Or is the hypothesis that PE firms are generating real returns somewhere without adding value to their portfolio companies? If the latter, where do the returns come from?
Great post, Auren! PE used to win by fixing broken companies. Now, with fewer inefficiencies left to fix, the model leans on debt, fees, and cosmetic tweaks. The returns haven’t disappeared—but the value creation has shifted from business transformation to financial extraction. Has PE gotten too institutional—more focused on deploying capital than building companies? And are there still niches where real value creation still happens?
Great article, Auren. After 2 PE exits, I can confidently say that the financial engineering part is contributing lesser than actual performance improvements towards driving value; PEs are realizing this and investing in operating partners for their expertise in helping portfolio companies get better outside of a spreadsheet.
Of course lots remaining to be done. I’m currently working on a startup that is designed to help PE companies run their software business more effectively, in a way that they won’t be able to go back to their old ways once they see it.
Happy to chat with you if you’re interested.
If true, how do the PE firms make money? Is the hypothesis that LPs are throwing away billions investing in PE firms that won't drive returns based on historical norms that won't be repeated? Or is the hypothesis that PE firms are generating real returns somewhere without adding value to their portfolio companies? If the latter, where do the returns come from?
much of their past returns came from cheap debt. going forward, they will have to significantly improve the business.
Great post, Auren! PE used to win by fixing broken companies. Now, with fewer inefficiencies left to fix, the model leans on debt, fees, and cosmetic tweaks. The returns haven’t disappeared—but the value creation has shifted from business transformation to financial extraction. Has PE gotten too institutional—more focused on deploying capital than building companies? And are there still niches where real value creation still happens?