{ "docId": "019dd923-5ca1-7489-b635-efee526b2162", "docSlug": "6ebe7bc3c470921e", "documentTitle": "Global Private Equity Report 2015", "authorId": "Bain", "authorName": "Bain", "documentKindSlug": "consulting-deck", "documentKindLabel": "Consulting deck", "sourceTypeSlug": "strategy_consulting", "sourceTypeLabel": "Strategy consulting", "presentationDate": null, "orientation": "portrait", "aspectRatio": 0.773, "pageNumber": 57, "pageCount": 68, "prevPage": 56, "nextPage": 58, "slideType": "key_messages", "function": "summarize", "density": "overcrowded", "nDataPoints": 0, "notes": "Page 51 of a Bain & Company report.", "elementsJson": [ "paragraph" ], "metadataConfidence": 1, "imagePath": null, "slideHref": "/slides/019dd923-5ca1-7489-b635-efee526b2162/57", "deckHref": "/decks/019dd923-5ca1-7489-b635-efee526b2162", "deckJsonHref": "/decks/019dd923-5ca1-7489-b635-efee526b2162.json", "deckAnchorHref": "/decks/019dd923-5ca1-7489-b635-efee526b2162#slide-57", "components": [ { "bbox": null, "kind": "callout", "text": "Forward-looking GPs—the kind that LPs want to invest behind—understand they must demonstrate that they can tap clear and enduring sources of competitive advantage, an alpha model that enables them to transform the assets they acquire to generate top-quartile returns.", "attrs": null, "subkind": null, "toolName": "Visual emphasis", "toolSlug": "visual-emphasis", "confidence": null, "componentId": "019dd951-b48c-7655-b301-3c2e3d8bb52b", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.01, "w": 0.03, "x": 0.485, "y": 0.955 }, "kind": "paragraph", "text": "Page 51", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "69aa05c3-fca4-447b-ac09-b2c20b15b970", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.285, "w": 0.764, "x": 0.118, "y": 0.123 }, "kind": "paragraph", "text": "The break in performance persistence has further complicated LPs' task of determining whether a fund's performance was the result of canny investment prowess or blind luck. Persistence still matters, but LPs can no longer rely on it as they have in the past and must look beyond a GPs past track record when making investment decisions. Investors have become keenly aware that beta, the passive outcome of market forces, is no longer likely to produce consistently strong returns from one fund to the next. But alpha—the value addition that skillful GPs manage to generate—is repeatable, as suggested by recent research from Oliver Gottschalg, a professor at the École des Hautes Études Commerciales in Paris, in collaboration with Golding Capital Partners. Their study found a statistically significant correlation between the evidence of alpha present in one fund and its successor. By identifying funds that have a demonstrated model for generating alpha, LPs can differentiate successful funds that will likely win again from those that are not apt to repeat their past success—though this is easier said than done. An even bigger challenge for LPs is to identify which firms have a repeatable model in place for generating alpha from the start. If they wait until the firm has demonstrated success in several earlier funds, they will likely find that they are too late to get in as an investor with that GP in its latest offering.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "72db2fba-7dc2-40de-b53c-0d9e44baceb2", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.125, "w": 0.764, "x": 0.118, "y": 0.448 }, "kind": "paragraph", "text": "When they sit across from skeptical LPs to pitch their latest fund, many GPs recognize that they have some explaining to do. If your most recent fund faltered, how can LPs tell whether the misfire was a one-off anomaly or a sign that your firm has lost its mojo? If your most recent fund's results fall within the narrow range of so-so performance turned in by the majority of GPs, what will persuade LPs that your next will be a breakaway winner? If your funds have done well in the past, how can they remain confident that you still have the skills needed to repeat that success?", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "e14cc81a-5bcb-44c0-b9b6-fd448e5b843e", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.145, "w": 0.764, "x": 0.118, "y": 0.585 }, "kind": "paragraph", "text": "Some PE firms that hit a bump during the downturn assuage questioning LPs by candidly acknowledging past mistakes and then quickly assuring them that these are unlikely to recur. Others that may have outperformed trumpet their success, while quietly anguishing over whether good fortune may deserve more credit than deft investment or portfolio management skills for their recent fund's strong performance. But candor and luck go only so far. Forward-looking GPs—the kind that LPs want to invest behind—understand they must demonstrate that they can tap clear and enduring sources of competitive advantage, an alpha model that enables them to transform the assets they acquire to generate top-quartile returns.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f01ad3ff-b593-4236-a9ea-20ae4603b845", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.145, "w": 0.764, "x": 0.118, "y": 0.742 }, "kind": "paragraph", "text": "At the core of a well-tuned alpha model is a PE firm's clear articulation of where it will play and how it will win. It draws a tight ring around the investment areas where it is confident it will find success and where it will hunt for the majority of its deals. It determines how it will win by looking across the entire investment value chain to map out an angle of attack that makes the most of the firm's unique strengths—from sourcing deals and conducting enhanced due diligence to applying a robust portfolio value-creation model and nimbly managing the exit process. In today's investing environment, those firms that hone a repeatable model for value creation in their portfolio companies will outpace the rest.", "attrs": null, "subkind": "paragraph", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "f5e3b48d-3ff0-4736-b589-3ee6f3a6aa26", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.013, "w": 0.386, "x": 0.307, "y": 0.057 }, "kind": "title", "text": "Global Private Equity Report 2015 | Bain & Company, Inc.", "attrs": null, "subkind": "headline", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "54f5a741-8d4f-401e-be26-7a4c55bd1cf0", "frameworkName": null, "frameworkSlug": null }, { "bbox": { "h": 0.015, "w": 0.215, "x": 0.118, "y": 0.421 }, "kind": "title", "text": "GPs' mandate to differentiate", "attrs": null, "subkind": "subtitle", "toolName": null, "toolSlug": null, "confidence": null, "componentId": "79e059ec-f977-49c6-adfc-e829cf5da413", "frameworkName": null, "frameworkSlug": null } ], "metrics": [], "tools": [ { "name": "Action Titles", "slug": "action-titles", "agent": "Architect", "layer": "slide", "matchId": "019dd95a-173e-703c-8768-8089b3bca7c8", "evidence": "Section frame: 'GPs mandate to differentiate'", "confidence": 85 }, { "name": "Core Message Extraction", "slug": "core-message-extraction", "agent": "Architect", "layer": "slide", "matchId": "019dd95a-173e-703c-8768-8468c2e882e8", "evidence": "Synthesizes alpha-model thesis", "confidence": 78 }, { "name": "Thesis archetype", "slug": "thesis-archetype", "agent": null, "layer": "slide", "matchId": "37ea0694-ce08-4022-9c41-372d2a0f4bee", "evidence": "At the core of a well-tuned alpha model is a PE firm's clear articulation of where it will play and how it will win.", "confidence": 0.7 } ], "frameworks": [], "arcBeats": [ { "to": 58, "from": 52, "beatId": "019dd95a-07a4-702a-b0b2-910214af8673", "arcName": "The Consultant's Gambit", "arcSlug": "consultants-gambit", "beatName": "Evidence & Proof", "beatSlug": "consultants-gambit-evidence-proof", "evidence": "Performance compression data: vintages, quartile gaps, persistence slipping", "position": 4, "confidence": 82, "parentBeatName": "Evidence", "parentBeatSlug": "evidence" }, { "to": 58, "from": 29, "beatId": "019dd95a-07a5-761b-9143-8438c4caf57f", "arcName": "The Triple Take", "arcSlug": "triple-take", "beatName": "The Implications (So What)", "beatSlug": "triple-take-the-implications-so-what", "evidence": "Section 2: dynamics that will shape PE in 2015+", "position": 2, "confidence": 70, "parentBeatName": "Reflection", "parentBeatSlug": "reflection" } ], "loops": [ { "to": 57, "from": 52, "name": "So What Cascade", "slug": "41-so-what-cascade", "bestFor": "Data presentations, executive summaries, driving to recommendations", "matchId": "019dd95a-088c-724c-b312-49466c52b2cc", "evidence": "Compressed returns -> narrower band -> persistence slipping -> GPs' mandate to differentiate.", "position": 9, "objective": "Drive return-compression data to a so-what about GP differentiation", "structure": "The Data -> So What? 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