Posts Tagged “Institutional investors”

How Active Are GPs in Portfolio Companies?

September 10, 2020

Recent Research on Asia Private Equity by Grant Fleming, Partner, Continuity Capital Partners

Grant Fleming, Partner. Continuity Capital Partners will be speaking at SuperReturn Asia, 28 – 30 September 2020 in Hong Kong

The last ten years of Asian private equity has witnessed substantial growth in the number of firms, assets under management, and contribution of private equity to M&A activity. We have seen the emergence of large public-to-private transactions, a scalar change in the size of local private equity markets in China and India, and private equity professionals develop and hone skills consistent with global best practice.

Institutional investors in private equity are more discerning about manager selection, favouring firms where there is clear evidence of active equity ownership by private equity managers in their portfolio companies (leading to demonstrated excess returns above listed equities). Our understanding of how active Asian GPs are in portfolio companies has been improved recently by several studies, which we describe below.

Academic studies on U.S. and European private equity have found that private equity owners are active owners. Private equity backed firms are more likely to be involved in M&A, and to perform better than industry competitors. GPs also hold company management accountable for financial and operational performance. As a result, it is not uncommon for LBO companies to have turnover at senior management positions (see Acharya, Hahn and Kehoe 2009). Venture capitalists have been found to add value to portfolio companies through strategic advice, access to networks and aiding the “professionalization” of start-up firms (see Hellman and Puri 2002).

Until recently there were no large sample, empirical studies on whether Asian GPs are active in their portfolio companies to the same extent as elsewhere. That has now changed. The recent research tells us the following:

  • Asian GPs are active owners of companies, helping shape strategic and operational change Cumming, Fleming, Johan and Takeuchi (2010) analysed over 400 Asia transactions over the last 20 years to provide the first evidence on operational change instigated by Asian GPs in companies. Asian LBOs are more likely to involve acquisitions than divestitures, a contrast to the U.S. and Europe where corporate restructuring through divestitures has been a common activity for GPs. Companies operating in the growth markets were very active in acquisitions - China (85% of firms made an acquisition), South Korea (85%), Taiwan (73%), and India (70%) - although Asian GPs operating in slower growth “developed” economies also had made their fair share (e.g. Australia: 52%). Divestitures were less common than acquisitions in all markets, with usually only about 10% of firms in each country divesting divisions.
  • Corporate governance improves following a management buyout Li, Wright and Scholes (2010) studied 19 Chinese management buyouts to see how corporate governance changed post-buyout. Changes were noted in several areas. First, board size decreased from, on average, 11 people to 8 people. Second, the proportion of independent directors increased from less than 10% of the board, to over 40%. And finally, there was an increase in the frequency of board meetings. In sum, management buyouts improved corporate governance and moved these firms closer to international best practice.
  • Asian management teams are held accountable to performance targets − Cumming, Fleming, Johan and Takeuchi (2010) also examined management turnover. They found that Asian GPs instigate managerial turnover in about one third of Asian LBOs (i.e. a change in CEO, chief financial officer, and/or chief operating officer).  Also, there was no difference in management turnover between “growth capital markets” such as China and India, and “LBO markets” such as Japan and Australia.  Private equity ownership is active ownership despite the structure of local labour markets, or other cultural factors which may a priori lead one to believe that turnover of senior management is difficult.


The Asian private equity market is still young in its development, and Asian GPs often still need to sell the virtues of private equity ownership to entrepreneurs and management teams. This new research gives prospective private equity recipients, and investors in the asset class, additional insight on how Asian GPs behave, and whether they are implementing value adding, active equity ownership in private companies. That Asian GPs show that they are just as likely as elsewhere to be active owners alongside management bodes well for the growth of private equity as an attractive form of equity ownership in the region.

Grant will chair the Private Equity Strategies day at SuperReturn Asia 2010 (27 -30 Sept), which will look at buyouts, the capital growth outlook and what is the next hottest market in Asia?


About Grant Fleming, Partner, Continuity Capital Partners

Grant has worked in illiquid asset markets in Asia for 10 years, with particular focus on private equity, and credit and distressed opportunities.

Grant began his work in finance markets while an academic at the University of Auckland and the Australian National University. Between 1989 and 2001 he lectured on economics, business history, corporate finance and private equity, and led a series of research projects on analyzing the development of business in the twentieth century, and the empirical analysis of private capital markets. He has authored over fifty academic articles and two books, and continues to publish in scientific journals.

In 2001 Grant joined Wilshire Associates Incorporated, researching and building Asian private equity and distressed debt portfolios for a global investor base located in Australia, Japan, U.S.A and Europe. He was also a member of the firm’s global investment committee and led the private market division’s research program. Between 2006 and 2010 was located in Japan, establishing the firm’s North Asian research team.

Grant holds Bachelors, Masters and PhD degrees in economics from the University of Auckland


Further Reading

Acharya, V., Hahn, M. and Kehoe, C. (2009) “Corporate Governance and Value Creation: Evidence from Private Equity” NYU Working Paper No. FIN-08-032. Available at SSRN:

Cumming, D., Fleming, G.,  Johan, S. and Takeuchi, M. (2010) “Corruption, Legality and Buyout Returns” paper to Law, Ethics and Finance Conference, York University, Canada, 16-18 September.

Fleming, G. and Takeuchi, M. (2010) “Leveraged Buyouts and Control Oriented Investments in Asia” forthcoming in D.J. Cumming, ed., Handbook of Private Equity (Oxford University Press). Available at SSRN:

Hellman, T. and Puri, M. (2002) “venture Capital and the Professionalisation of Start-Up Firms: Empirical Evidnce” Journal of Finance, vol. 62(1), pp. 169-197.

Li,Y., Wright, M. and Scholes, L. (2010) “Chinese Management Buyouts and Board Transformation ” paper to Law, Ethics and Finance Conference, York University, Canada, 16-18 September.

Post Under: Asia

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