PE Firms Are Holding Investments Longer—and Changing Leaders More

Private-equity firms are holding on to their portfolio companies beyond the typical three- to five-year window, leading to changes in the corner office.

One of the biggest impacts is that CEOs hired under the old playbook may not be the right fit as needs evolve over the longer time span. Old models that focus on traditional financial engineering and rapid growth strategies are no longer sufficient, my colleague Laura Kreutzer reports for WSJ Pro Private Equity.

Or as Dan Hawkins, founder and chief executive of leadership advisory firm Summit Leadership Partners told Laura: “Private-equity firms are really starting to change what their [portfolio company] needs are, so there’s a lot more focus on the CEO.”

These extended holding periods may have corresponding spillover effects to the rest of the C-suite, including CFOs, Laura told me. (Read on for our Q&A below.) Russell Reynolds Associates also has pointed out in the past that portfolio CFO turnover already is twice as high as public company CFO turnover. 

On average, portfolio companies have two CFOs per deal (LBO/buyout), with an average holding period of five years, resulting in an average tenure of 2.5 years, Russell Reynolds notes.

Some more stats: Of the 33,853 private-equity-backed companies globally at the end of September, 8,074, or nearly 24%, have been held for at least seven years, according to data provider PitchBook. Historically, many private-equity firms have typically sought to hold their investments for three to five years.