Transformation is key for private equity funds in Asia

10 February 2021 5 min. read
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Digital and workforce transformation have taken on a whole new relevance amongst private equity firms in Asia, according to a new survey conducted by Oliver Wyman, Marsh and Mercer.

As of 2019, Asia Pacific (APAC) accounted for a quarter of global private equity investment, putting funds in the region at the centre of global funding landscape. Oliver Wyman, Marsh and Mercer surveyed over 40 funds across Southeast Asia, Hong Kong and Mainland China to examine how they are coping with life after Covid-19.

The survey was directed at strategy-steering senior executives – most of whom have sprung into action amid the crisis. Indeed, more than 30% are already implementing strategies that will mitigate the pandemic’s impact on their fund, while another 50% are on the verge of implementation having nailed down the specifics.

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The rest are still developing a plan – not a single fund reported having no plan at all. The quick and decisive action was largely prompted by the heaviness of the impact. In Southeast Asia, for instance, deal value in Southeast Asia plummeted by 20% in the first quarter of 2020 – compared with the last stretch of 2019. 

Having responded with speed, most are confident that the impact on deal value was temporary, likely to even out in the medium to long term. That is, if funds can adapt in real time to a volatile post-pandemic market. Based on the survey, transformation is key.

“Post-Covid, the importance of rapid but sustainable transformation has emerged as a critical action point. These areas have long been on private equity funds’ radars, but have taken on a heightened level of importance in an uncertain environment, where rapid adaptation and change is synonymous with value,” explained Dhruv Mehra, partner in M&A services and Asia leader at Mercer.

Digital transformation

In focus are digital transformation and workforce transformation. 60% of survey respondents stated digital transformation to be a major concern going forth. Indeed, tech investments can boost efficiency at the back end – via cloud, automation and blockchain, among others – while data analytics can also help at the front end with digital customer engagement models. 

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The problem is that few funds have the capacity to deliver this transformation internally. Nearly 80% claimed to need support with digitalising the back end, while 60% will need support with tech-based customer engagement. “The critical gap between ambition and skill set is concerning, but can be an opportunity for those fastest to bridge the gap,” noted Cheow Ai Ling, managing director and Private Equity practice leader at Marsh.

Workforce transformation

Equally crucial is workforce transformation – mainly to keep pace with the digital change. For two-thirds of survey respondents, this means using artificial intelligence and automation to improve productivity. This provides much-needed efficiency in a cash-strapped environment, while also making room for more effective digital transformation.

By freeing employees of repetitive administrative tasks via automation, funds can make time room for internal upskilling in line with the digital transformation agenda – another key priority for more than 40% of funds. Well over 50% also want to restructure their workforce – streamlining it to manage rapid digital change as well as adapt to post-Covid market realities. 

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Drawing on this, nearly half are planning to implement flexible working arrangements, as forced lockdown opened many eyes to the cost and productivity benefits of virtual working. Many organisations globally are now experimenting with flexible and hybrid working models.

Here too, funds are uncertain of their ability to drive change. The majority report a lack of alignment within the company workforce – in terms of culture and leadership. These factors tend to weigh down on value creation capabilities.

For Ben Clemens Blazer – partner and head of Corporate Finance & Advisory at Oliver Wyman APAC – a deep-seated approach to transformation is key to overcoming capability barriers.

“Covid-19 has clearly shaken up the traditional models under which value is developed and sustained in a financial private equity investment, and new toolsets are required to ensure companies perform as expected in this new normal.”

On the flipside is that the market is now wide open, for those who grab it. “Where there are challenges, fast movers will be able to uncover considerable opportunities from this turmoil to deliver a better level – and quality – of performance,” concluded Blazer.