monitoring phase once an investment is made an active ownership model and Hands-On governance allow private Equity firms to drive operational value Creation in that investment during the holding period private Equity investors management and independent advisors work to reposition the business reformulate strategy and closely monitor. Its progress post investment.
Portfolio companies initial strategy draws mainly on the incumbent management team's vision for the business and other areas identified by the private Equity investor during the due diligence. The company strategy is discussed with management throughout the pre-deal process not only to receive their input but also to ensure their buy-in for subsequent implementation. However, the strategy is not set in stone as private equities active ownership model allows ongoing reviews and revisions of the strategy and business plan.
During the holding period private Equity firms have three roles.
To monitor the investment on behalf of limited partners to help management create value and to prepare for exit.
To oversee and monitor the investment involves reporting regularly to the LPS on developments Milestones accomplished and valuation changes. This typically takes the form of quarterly and annual reports that are sent to the investors. They will include updates on the private Equity firms activities overall valuation and individual portfolio investment valuation and developments. Sometimes monthly results are also made available. However, this is less usual and will be limited to the financial results of the investment that month orders of the fund done by external Auditors are also sent but this is handled by the finance team of the private Equity Firm with little input from investment professionals LP meetings are organized by the private Equity Firm quarterly and annual where all employees of the firm will meet and present in person about the fund and its portfolio to all investors. These are often multi-day marketing events with informal dinner or lunch meetings included governance and pushing oper.
Value creation of the investment involves interacting frequently with management of the portfolio company. This will usually be done through a two-pronged approach the first being through the Border directors on which some of the private Equity deal team members will sit alongside other CEO CFO and some independent board members that the private Equity Firm of appointed. This forum will oversee management strategy and provide checks and balances to the investment subcommittees may be formed such as the audit or compensation subcommittee. But essentially the board will act as a sparring partner with management to influence management and to make sure that the investment is meeting or exceeding plan if things are not going well at an investment. The board is key in helping management with Solutions and to keep them accountable.
The second is through direct intervention from the private Equity deal team an external resources such as advisors of the private Equity firm's Network. This is normally in parallel to the board. The teams will employ advisers such as investment Banks Consultants or other experts when necessary examples of some of the projects will be around refinancing refi's mni activity business plan and strategy implementation and preparation for exit preparing the investment for its eventual sale is driven mainly by the private Equity deal team involved. This will usually begin early in the Investments life and essentially involves the private Equity Firm making sure that value creation milestones in the agreed business plan are being met by management that any opportunistic value creation opportunities are grabbed and to keep the investment attractive and on the map for potential future buyers. The private Equity Firm will play its roles in the following way LPS will receive monitoring reports on a regular basis from the PE firm. These will include financials and material developments at the portfolio.
Company the PE firm will control the board which will provide governance over management so that they can execute and drive operations to achieve the business plan set by the board. The PE firm will control its deal team and any external advisors who will work together with management to drive specific investment related value creation initiatives such as hundred Day plans refinancing m&a and exit.
