The operating partner delusion | PE Hub
Private equity has spent years hiring operating partners without deciding what an operating partner is actually for.
An operating partner is an experienced executive hired by a private equity firm to improve portfolio company performance. They may advise management, sit on boards or execute the value creation plan set when the business was acquired.
In practice, the title can mean a former chief executive, a functional specialist, a consultant or a senior operator expected to become a shadow chief executive when the real one disappoints. It changes by firm and asset. Firms call this flexibility generous. It looks like organizational confusion wearing a very expensive suit.
The role is created backward. Limited partners want evidence of value creation, so the firm hires impressive people. Only afterward does anyone consider authority. A forceful operator becomes a parallel management layer. A diplomatic one becomes a well-paid source of suggestions. Hardly an operating model.
The deal team owns the investment thesis. The management team owns execution. The operating partner sits between them with authority over neither. They are accountable for improvement, but often cannot replace an executive, approve a budget or redirect resources. Private equity has invented the consultant with carry, then acts surprised when advice fails to travel under its own power.
The macroeconomy hands in its notice
The fashion cycle gives the game away. Five years ago every firm needed a head of digital. Then limited partners asked about environmental, social and governance policies and diversity, so new titles appeared. Today, having a head of artificial intelligence is all the rage.
Hiring specialists is sensible. Treating the appointment as evidence of capability is questionable. A head of artificial intelligence without portfolio data, budget or authority mainly serves as a fundraising accessory. It is like hiring a Michelin-starred chef and keeping him out of the kitchen. The same applied to plenty of ESG appointments, although the stationery was excellent.
For a long time, this did not matter enough. Private equity could buy a decent company, add leverage, hold board meetings and benefit from a higher valuation four or five years later. McKinsey estimates that roughly two-thirds of total returns on buyouts entered from 2010 onwards and exited by 2021 came from leverage and market multiple expansion. A surprising number of firms built reputations as brilliant operators while the macroeconomy did most of the operating.
The macroeconomy has now handed in its notice.
Debt is more expensive, exits are slower and a higher sale multiple can no longer be dropped into an investment case with the breezy confidence of a weather forecast. Bain describes the return challenge as “12 is the new 5”: a deal that might once have needed about 5 percent annual growth in earnings before interest, tax, depreciation and amortization to reach a target return may now require roughly 12 percent. That cannot be delivered through a quarterly discussion about procurement and a tasteful dashboard.
Firms have responded by adding bodies. McKinsey found that operating groups more than doubled over three years. Yet KPMG’s 2025 research found only 52 percent of respondents claiming seamless coordination between deal and operations teams. More than two-thirds of operating partners worked across more than five portfolio companies. Among the 10 largest firms, operational value creation roles represented 10 percent of employees, compared with 56 percent in investment roles.
They have hired more people into a job that nobody has properly designed. An impressively private equity solution.
Get in early
The fix is early involvement, explicit authority and accountability for results. Standard features of a real job, but apparently innovation in private equity.
Operating partners should help build the thesis during due diligence. Bringing them in after completion is like inviting someone for dinner once the bill arrives, then asking about the menu. If they must deliver growth, margin improvement or cash release, they should validate those assumptions before the price is agreed.
After completion, the operating partner needs defined decision rights, access to data, a board role where appropriate, influence over key hires and an escalation mechanism when targets are missed. Management must know when the operator is offering a view and when that view carries weight.
Incentives must also follow outcomes. If operating partners are responsible for portfolio performance, their compensation and standing inside the firm should reflect realized results, not the number of initiatives launched or limited partner meetings attended. Deal partners cannot retain every important decision while outsourcing disappointment to the operating team.
Private equity must become the operating business it has spent years telling investors it already was. That means fewer ornamental experts, fewer fashionable titles and more teeth. Otherwise the operating partner will remain expensive office furniture: experienced enough to see what is wrong, senior enough to be blamed for it and positioned so that very little changes.
Lee McCabe is the founder of private equity firm Claymore Partners.
