How private equity is building agile and risk-resilient portfolios
13 July 2021
To survive a global recession and the shift to a remote work environment – all fueled by the pandemic – private equity investors have relied on a variety of tools to pivot their portfolio companies toward growth. “Private equity has rarely been in a better position resource-wise to support their portfolio. To build resilience, portfolio companies can gain an advantage of international expansion by testing new markets during global transactions,” says Charles H. Ferguson, General Manager Asia, at SCC member Globalization Partners.
Globalization Partners’ full-stack global employment platform makes it simple and easy to hire a remote global team, without setting up branch offices or subsidiaries. “We have our own business entities set up in nearly every country in the world meaning the legwork required for you to hire and manage international talent is already done. Our vision is a world where the best companies and brightest people can seamlessly collaborate, without regard to jurisdiction,” Charles explains.
Coming out stronger on the other side of the pandemic
Charles says that private equity has rarely been in a better position resource-wise to support their portfolio. “According to a 2020 report from Preqin, PE was sitting on a record-setting US$1.46 trillion of dry powder, which was critical in drafting new strategies for their portfolio companies to come out on the other side of the pandemic stronger.” A recent report from investment manager firm Alvarium Investments confirms the positive outlook, arguing that the private lending market is three times larger and more mature, compared to the 2008 crisis.
Building long-term resilience
Due to the prevailing market conditions, organisations are forced to look beyond building strategically sound portfolios, and build long-term resilience to tackle uncertainties in the future. “A resilient portfolio will perform well across a range of different market conditions, giving the company the flexibility to change its strategic course depending on how critical events unfold.”
Driving value through international expansion
Private equity investors have several tools at hand to maintain market relevance of their portfolio companies. Apart from capital injection, restructuring process assistance, and technology deployment, one of the most effective ways to drive value to their portfolio companies is through international expansion. “Portfolio companies can gain an advantage of international expansion by testing new markets during global transactions,” Charles says and continues: “By encouraging operating partners to go where the talent lives and expanding internationally, you will be broadening their choice of top candidates and potentially cutting their overheads with salaries in lower cost jurisdictions.”
Competitive advantages to international teams
Charles argues that there are competitive advantages to having international teams. “Non-homogenous teams are smarter and give leadership visibility into unexplored markets. This may lead your portfolio companies to expand their client base and explore less costly talent hubs around the world rather than limiting hiring to a domestic market, both of which build versatility into their business.”
Opportunities in the wake of Brexit
While businesses have been faced with many challenges in the wake of Brexit, the UK’s exit from the EU also can offer unique opportunities to PE firms looking to expand internationally. “Many companies reacted to the Brexit-imposed end to the freedom of movement, as well as the Covid-19 pandemic, by freezing hiring. Private Equity firms now have an opportunity to inject capital into restaffing their portfolio companies, taking advantage of a larger-than-usual talent pool and diversifying geographically in the process.”
For investors, adopting and executing a remote-first mindset, and then impressing this on portfolio companies is crucial. According to Charles, the impact of Brexit may be mitigated if operating partners use the remote-first mindset, which was adopted by knowledge-based and financial companies in 2020, as a springboard to distant talent markets. “Building value into a company during crises is not a new concept. But intentionally widening the recruitment net to new markets might not have occurred to your portfolio companies, and they could be missing an opportunity.“
About Charles H. Ferguson
As General Manager and Head of Globalization Partners business in Asia, Charles is responsible for establishing scale and efficiency for the company’s business expansion in one of the most dynamic markets in the world. Charles is an expert on the advisory and operating side of private equity and venture capital, with over a decade of experience building teams for PE and VC organisations, focused on defining their GTM strategy.