On May 17, 2012, McGladrey in conjunction with Pitchbook published their annual survey of professionals within the Private Equity industry. As we have been blogging for some time, it is clear that the PE industry focus is shifting in a big way into a much more active portfolio management phase.

While the survey has nearly 20 pages of detailed findings, I glommed onto a few meaningful comments vis-à-vis the need to generate value from middle market holdings through growth planning:

“Post financial crisis financial firms must focus even more on creating value rather than relying on financial engineering or leverage to create returns. For firms investing in middle market companies, this focus is particularly important to help these businesses survive.” (This was the first line of the Executive Summary”)

“Our survey suggests that private equity firms have realized the importance of deep active management within their portfolio companies. Accordingly, firms are designing comprehensive, customized improvement plans for each of their investments that outline specific steps for establishing strong leadership and dependable operating systems to achieve the value creation required.”

“However, more private equity firms are moving to increase their level of operational involvement, with 34 percent of firms reporting that they create the improvement plan at the fund level, either through a deal team member or an operating executive or functional specialist.”

“Management capabilities, however, are still considered critical to success. More than 95 percent of respondents identify management capabilities, along with effective strategy and execution, as the top factors driving successful investments. Conversely, ineffective management teams are cited as the primary reason for underperforming assets, highlighting the integral role played by management in the success or failure of virtually all investments.”

“Private equity firms are less inclined to associate ineffective strategy or execution with struggling investments (76 percent) than they are to credit success with effective strategy and execution (96 percent). Unsurprisingly, just 45 percent of respondents attribute investment success to external factors while 60 percent state they had a significant role in underperforming investments.”

The survey can be pulled down via either the McGladrey or Pitchbook web site (http://mcgladrey.com/News-Releases/Annual-McGladrey-Survey-Shows-Private-Equity-Firms-Focused-On-Spurring-Growth-Creating-Value-at-Portfolio-Companies)