"Private Equity Firms Facing Delayed Exits Must Strengthen Data-Driven Operations"

Samjong KPMG Releases "Restructuring Value Creation Strategies for Private Equity Funds" Report

Private equity (PE) firms are finding it increasingly difficult to exit their investments due to rising interest rates, persistent inflation, and geopolitical risks, including tensions between the United States and China. Analysts suggest that value creation strategies must be restructured based on data.

On November 20, Samjong KPMG released a report titled "Restructuring Value Creation Strategies for Private Equity Funds." The report was based on a survey of 500 global PE leaders and incorporated the latest data from major institutions such as PitchBook, S&P Global, and Morgan Stanley Capital International (MSCI).

According to the report, PE firms have recently experienced delays in investment exits, with the average holding period extending to more than six years. There is also a growing trend of utilizing continuation funds, which allow firms to transfer high-quality assets held by existing funds to new funds for long-term holding, instead of selling them at maturity. As of this year, the distribution-to-paid-in (DPI) ratio has decreased by 52% compared to 2013, while the amount of unrealized assets has surged to 3.6 trillion dollars.

With the initial public offering (IPO) market contracting and valuation gaps widening, the uncertainty of exit strategies has increased. The report advises that PE firms need to seek new strategies aimed at margin improvement and revenue generation from a mid- to long-term perspective of five to six years or more. Funds that internalize data-driven operational alpha (excess returns) are likely to outperform those focused solely on stock selection and are also better positioned to attract next-generation limited partner (LP) capital.

The report emphasizes that, as a core competency for securing operational alpha, firms must establish systems that enable sophisticated decision-making in highly uncertain markets through predictive analytics based on big data and artificial intelligence (AI), and prepare for various risk scenarios using dynamic analysis.

It also recommends that firms secure external intelligence, including alternative data, to proactively identify risks and opportunities based on asymmetric information about the market, customers, and competitive environment.

Additionally, the report advises strengthening operational agility by proactively supporting portfolio companies through probability-based modeling and AI analytics. Building integrated, real-time data assets across the entire portfolio to spread best practices was also highlighted as important. Finally, it stressed the need to overhaul the operating model by enhancing collaboration between investment and operational functions and expanding the role of portfolio management partners.

Kim Jinwon, Deputy CEO of Samjong KPMG, stated, "In an environment where high interest rates, geopolitical risks, and technological innovation are occurring simultaneously, a data-driven operational alpha strategy is no longer optional but essential. PE firms must secure long-term competitive advantages by leveraging big data and AI, acquiring external intelligence, and innovating their operating models."

This content was produced with the assistance of AI translation services.