Private equity (PE) firms operate with the sole aim of generating superior returns for investors. But returns don’t just happen by chance. The real magic lies in transforming portfolio companies, and at the heart of that process is the role of the Operating Partner.
Operating Partners work directly with portfolio companies to drive operational improvements, achieve strategic goals, and ultimately increase the firm’s value. This post explores the role, responsibilities, and impact of Operating Partners, as well as how PE firms find the right talent for these positions.
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The role of an Operating Partner has gained prominence in private equity as the focus shifts from purely financial engineering to value creation through operational expertise. These professionals are crucial to enhancing portfolio performance, ensuring that value is extracted not only through capital structure optimization but also through efficiency, innovation, and execution at the operational level.
An Operating Partner serves as a bridge between the private equity firm and its portfolio companies. They provide operational oversight, strategic guidance, and work closely with company leadership teams to implement best practices. While the role can vary across firms, one thing stays constant: they’re there to drive operational efficiency and fuel growth. Operating Partners are typically industry veterans with hands-on experience, enabling them to provide actionable insights and strategic direction to portfolio companies.
Don’t let the similar titles fool you — Operating Partners and General Partners (GPs) play entirely different roles in a PE firm. General Partners (GPs) are primarily responsible for sourcing deals, raising funds, and managing investor relations. Their focus is on the financial side of the business, such as acquisitions and exits, deal structures, and fundraising. On the other hand, Operating Partners are more operationally focused, working within the acquired companies to help improve processes, execute on strategic plans, and increase profitability. Think of it as financial strategy vs. operational strategy. Operating Partners are focused on “value creation,” while GPs focus on deal structures and exits..
Success as an Operating Partner requires a broad set of skills, including:
The responsibilities of an Operating Partner are multifaceted and vary depending on the size, industry, and maturity of the portfolio company. However, certain core duties remain consistent across the role.
One of the primary responsibilities of an Operating Partner is to work directly with portfolio company management teams to drive operational improvements. They frequently serve as mentors and advisors to C-suite executives, helping to implement strategic initiatives and improve day-to-day operations. The focus is on value creation, which can be achieved through various means, including improving efficiency, reducing costs, and expanding market share.
A major task for Operating Partners is creating tangible value in portfolio companies. This is achieved by identifying operational inefficiencies, reworking business strategies, and executing growth initiatives. Value creation isn’t limited to cost-cutting. It can also involve driving top-line revenue growth through innovative strategies, product development, or expanding into new markets.
The most direct way Operating Partners contribute is by facilitating operational improvements. This can include streamlining supply chains, improving product development cycles, or optimizing pricing strategies. In many cases, the Operating Partner works closely with the management team to develop and implement performance improvement plans, ensuring that every facet of the business runs more efficiently.
A key question for any private equity firm is: How do Operating Partners create value beyond what traditional management teams can achieve? The answer lies in their ability to bring a fresh perspective, combined with industry experience and a data-driven approach to decision-making.
Operating Partners bring “fresh eyes” to the management team, helping spot issues and opportunities that in-house teams might miss. This collaboration extends beyond board meetings to day-to-day operations, where Operating Partners help guide decisions on everything from hiring to technology implementation.
The Operating Partner plays a key role in helping companies execute strategic plans developed during the investment process. These plans often include detailed roadmaps for growth, cost reduction, or expansion into new markets. The Operating Partner is responsible for ensuring that these plans are not just theoretical but are implemented effectively to drive results.
Operational efficiency is a primary driver of value creation in private equity. Operating Partners are tasked with identifying areas for improvement in operational processes and helping portfolio companies implement these changes. Whether it’s refining manufacturing processes or improving supply chain management, their goal is to create leaner, more efficient businesses that are better positioned for growth.
Finding the right Operating Partner is critical for private equity firms, given their pivotal role in value creation. PE firms often engage executive search firms that specialize in identifying top-tier talent with the right blend of industry knowledge and operational expertise.
Private equity executive search firms focus on identifying candidates who have a strong background in the relevant industry and experience in operations, strategy, or turnaround management. These search firms also prioritize cultural fit, as Operating Partners need to integrate seamlessly into both the PE firm and the portfolio company.
Recruiters typically look for candidates who have a track record of driving operational improvements in relevant industries. In addition to industry expertise, key qualifications often include:
A successful Operating Partner must have deep industry knowledge. This allows them to understand the unique challenges and opportunities facing a portfolio company. Recruiters place significant emphasis on industry experience, as it allows the Operating Partner to hit the ground running and offer valuable insights from day one.
The Operating Partner’s collaboration with the deal team is crucial to the success of the investment. Their input is often sought during both the acquisition and exit phases to ensure that operational considerations are fully integrated into the decision-making process.
Operating Partners are frequently involved in the due diligence process, evaluating the operational strengths and weaknesses of potential acquisitions. They provide insights into whether the company’s operations are scalable and what improvements will be needed post-acquisition. Similarly, during the exit process, they help ensure that the company is operating efficiently and can command the highest possible valuation.
Once a deal has closed, the Operating Partner provides ongoing oversight and guidance. This can range from high-level strategic input to more hands-on involvement in day-to-day operations, depending on the needs of the portfolio company.
Operating Partners need to seamlessly integrate with both the portfolio company’s existing leadership team and the private equity firm’s deal team. Their ability to build relationships and foster collaboration is critical to ensuring that the operational improvements are sustainable and lead to long-term value creation.
Operating Partners are the bridge between financial strategy and operational excellence. Their role is pivotal in unlocking the full potential of a private equity firm’s portfolio companies. With their industry expertise, leadership skills, and ability to drive operational improvements, they turn good companies into great investments.
From driving operational improvements to collaborating with management teams and providing strategic oversight, Operating Partners are the key drivers of value creation in the modern private equity landscape. Their collaboration with the deal team during acquisitions and exits further solidifies their role as essential players in the success of PE firms.
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