What's most important for PE investment success in times of extreme disruption? Smart management of human capital.

With the pandemic, political strife, racial injustice, and extreme weather events escalating disruption to unheard-of degrees in 2020, PE investors and portfolio company executives have had to rethink many aspects of how they operate and craft strategic plans for the future.

In AlixPartners’ Sixth Annual PE Leadership Survey, we focused on the theme of how companies can best survive and thrive amid extreme disruption, thus ensuring PE investment success. With this theme top of mind, we asked participating investors and operators to weigh in on related questions, such as what’s most important for generating value during highly disruptive times, and how portco execs should lead in a landscape transformed by disruption.

The overarching message in this year’s survey findings was loud and clear: In times of extreme disruption, smart management of human capital becomes even more essential for portfolio company performance and thus PE investment success. This isn’t surprising, since how a company manages its talent can make or break its ability to survive crises as well as thrive in the aftermath.

What our research reveals:

  • Human capital becomes especially vital to sustainable growth during periods of disruption: Both respondent groups identified leadership and human capital as most essential for generating value at a portco in times of extreme volatility. And the two cohorts are now tightly aligned regarding human capital’s significance for value creation in the near term. What’s more, investors strongly identified employees as a stakeholder group most increasing in priority as a result of the disruptions of 2020.
  • Attitudes toward environmental, social, and governance (ESG) are mixed: While significant percentages of respondents declined to weigh in on how investors could best influence social-justice issues in the near term, responses selected most by those who did weigh in centered on launching initiatives related to diversity and inclusion. Moreover, slightly more than half of the investors acknowledged greater interest in companies that embrace ESG standards, indicating possible emerging support for ESG initiatives.
  • PE and portco leaders continue to expect more from one another: The PE leaders see their portco executives as too slow to take action amid disruption, while portco leaders are pointing to matters of culture change as the area where PE leaders must act more quickly. But despite the mutual finger-pointing (some degree of which comes up in each year’s survey), both groups agree that the quality of the relationships between management teams and boards remained the same--or even improved--during 2020.
  • Investment theses will change in some ways in the post-pandemic age: Among the PE leaders who anticipate rethinking their investment theses post-COVID-19, the expected changes center on two factors: hold times (which many of the investors did amend by one or two years during 2020), and portco performance targets (especially those related to growth and EBITDA). However, twice as many investors as portco leaders expected these performance targets to shift--suggesting possible misalignment between them on how portco performance will be managed going forward.
  • Portco C-suite execs face new imperatives. To balance urgent priorities with longer-term objectives, portco CXOs must excel at transformative leadership. With disruption as the backdrop, that means strengthening their communication and transparency skills; managing heightened complexity in their roles (such as the need to lead from a distance as more people work remotely); motivating and inspiring others; building strong relationships among stakeholders; and demonstrating the integrity and honesty essential for building trust in their organizations. Equally vital, execs must stay attuned to the risk of burnout in their workforces--and in themselves.


Interested in participating in our annual survey? Click here.

View past survey results, here: