From Financial Engineering to Operational Excellence: The Future of Value Creation in Private Equity
Private equity has entered a new chapter. Once dominated by financial engineering and leverage-driven strategies, the industry has now embraced operational excellence as the primary driver of value creation. While structuring debt and optimizing capital once accounted for the bulk of returns, today’s market realities, such as rising interest rates, regulatory scrutiny, and fierce competition for deals, demand a new playbook. The firms that thrive are those that can transform portfolio companies from the inside out.
The numbers highlight this dramatic shift. Between 1984 and 2000, nearly 70% of private equity returns came from leverage. By contrast, from 2008 to 2018, only 25% of returns came from financial structuring, with roughly 75% generated through operational improvements. For general partners and limited partners alike, this evolution has reshaped expectations. Private equity investors now demand measurable operational impact, and the leaders best equipped to deliver it are no longer just financial engineers. They are operators, strategists, and transformation specialists.
To deliver on this mandate, firms are increasingly building portfolio operations (PortOps) teams. Once a niche function, PortOps has become a core component of value creation. These teams act as trusted partners to portfolio company CEOs, parachuting in at pivotal moments to implement growth strategies, redesign supply chains, digitize processes, or strengthen go-to-market execution. For firms with multiple investments in different industries, strong portfolio operations leadership bridges the gap between deal origination and sustained portfolio performance.
The timing of when to build or expand a PortOps team is a strategic inflection point. It is not simply about fund size or firm maturity, but about deal velocity, recurring challenges, and LP demands for transparency. Firms often recognize the need when deal teams are stretched thin, when operating partners find themselves facing the same problems across multiple portfolio companies, or when limited partners ask for clearer reporting on operational metrics. At this stage, the most competitive firms build a business case and operational maturity model to ensure that the team they assemble aligns with long-term strategy.
Case studies bring this to life. OpCapita turned NKD from a €34 million loss into a €45 million profit through targeted restructuring. InfraVia applied data maturity models to accelerate digitization across its portfolio, creating new avenues of growth. Baring Private Equity scaled Cath Kidston by revamping its go-to-market strategy and optimizing its supply chain. None of these successes relied on financial leverage, they were the result of operational due diligence and execution by skilled leadership teams.
As firms invest in PortOps, executive search in private equity has taken on heightened importance. The best teams are built with a mix of talent archetypes: ex-CxO advisors who bring real world executive insight; functional experts who address recurring challenges in areas like technology, human capital, and supply chain; and generalists with the agility to drive transformation across industries. Every firm’s needs are different, which is why recruiting PE operating partners and portfolio operations talent requires a tailored, strategy-first approach.
Operational excellence also requires a disciplined framework. Successful firms begin with diligence-driven value creation planning, identifying opportunities during pre-deal phases. Post-close, they conduct diagnostics to prioritize initiatives, ensuring quick wins and long-term impact. From there, they deploy proven methodologies—Lean, Agile, Six Sigma—that make change measurable and repeatable. With this structure in place, portfolio companies move beyond stability to long-term competitiveness and growth.
The trajectory is undeniable: the future of private equity is operational. Financial engineering may have built the industry, but operational transformation will define it. Firms that invest in portfolio operations leadership, operating partners, and the right talent strategy will be those that consistently outperform.
At Esse Ki, we help firms find the people who make that transformation possible. Based in Chicago, our executive search and strategy practice is dedicated to building leadership pipelines in private equity, with a focus on advancing equity, empowering women, and enabling transformation. We connect firms with the operating talent who can unlock value, drive portfolio success, and deliver results in today’s operationally driven marketplace and evolving economy.
