Private Equity is grappling with a brutal new reality. Thedecades-long playbook of financial wizardry and quick flips is over, replacedby an era defined entirely by operational excellence. The mandate from GeneralPartners is clear: generate sustained, measurable value from the inside outover holding periods that now stretch to nearly six years.
Yet this demand for ruthless, data-driven execution iscolliding with a chaotic on-the-ground reality. While the mandate from GPs isto drive operational value, a shocking survey of Nordic CFOs reveals thatnearly two-thirds of their portfolio company counterparts admit to makingcritical decisions on gut feel because reliable data is simply unavailable.This article explores three hard truths that expose this dangerous gap betweenPE expectations and PortCo realities—a disconnect that must be closed for survivaland success.
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The old Private Equity model is broken, a casualty ofstructurally higher interest rates and significant valuation compression.Success is no longer about financial engineering; it’s about running a businessbetter.
The numbers tell an undeniable story of this structuraltransition:
• Financial engineering, which historically contributedas much as 70% of a deal's value, now accounts for onlyabout 25%.
• Operational Value-Add (OVA) has become the newdominant force, responsible for a striking 46-47% of totalreturns.
The consequence of this shift is that PE firms must now holdassets for far longer to generate this internal value. The median holdingperiod for a portfolio company has stretched to 5.8 years. Thisnearly six-year journey requires a world-class financial engine room tonavigate. However, a look inside most portfolio companies reveals that theengine isn't just inefficient—it’s leaking oil at critical junctures.
While PE firms demand world-class operational performance,the finance departments meant to steer the ship are mired in inefficiency andrisk. A survey of 438 Nordic CFOs reveals a systems landscape that is a complexand dangerous patchwork. A staggering 80% of CFOs still rely on Excel, but itrarely stands alone. 53% are forced to combine it with two other systems, while22% juggle Excel with three, creating a high-risk environment for manual errorand data silos.
This fragmentation is a direct threat to returns. While thePE playbook demands ruthless Working Capital Optimization, the survey showsfinance professionals are consumed by low-value tasks:
• 41% of their time is lost todouble-checking data—time that could be spent reducing Day Sales Outstanding.
• 40% of their time is consumed bylast-minute changes—distracting from strategic inventory management.
• 37% cite a lack of integrated data as theprimary barrier preventing them from being more strategic.
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In an environment where PE owners demand data-drivenexecution, the operational chaos within finance teams leads to an alarmingoutcome: critical decisions are based on incomplete information and intuition.
The confessions from the CFO survey are startling:
• A shocking 70% of CFOs admit tohaving approved a budget they didn't fully believe in, and for 28%,this is a repeated occurrence—a systemic failure, not a one-time mistake.
• Nearly 2 out of 3 CFOs have madeimportant decisions based on gut feeling rather than data. This figureskyrockets to 90% for CFOs in their 60s, suggesting a reliance onexperience precisely when PE owners demand quantifiable proof.
This gap between the need for data and the reality of itsavailability forces finance leaders into an untenable position.
This level of uncertainty is an existential threat to PEfunds whose returns now depend entirely on predictable, measurable operationalperformance.
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The central conflict is clear: the new private equitymandate for rigorous, long-term operational excellence is fundamentally at oddswith the fragmented, manual, and high-risk reality inside most portfoliocompany finance departments. This disconnect is no longer a minor inefficiency;it is a direct threat to value creation.
As PE firms are forced to become dedicated business buildersover a nearly six-year horizon, their first and most critical project isn'tlaunching a new product line—it's forging a financial data foundation that canactually deliver the operational value they promise. The urgent question forevery GP and CFO is: How confident are you in yours?
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