In the 1990s, the first PE operating partners were not involved in daily operations. They were senior, retired executives brought on for their networks to source deals and find talent ('I got a guy'), functioning more as high-level connectors than as value-creation drivers.
The GFC was a major catalyst for the growth of PE ops. As portfolio companies struggled, Limited Partners (LPs) grew concerned that traditional dealmakers lacked the skills to manage businesses through a crisis. This LP pressure forced firms to professionalize and build dedicated operations teams.
The current rush to hire dedicated 'AI Specialists' in PE ops mirrors the 2015 trend of hiring 'Talent Partners.' The speaker predicts that, like talent, AI will not be a siloed function. The specialist role is temporary; the long-term model will require AI proficiency to be a distributed skill across the entire firm.
The 2010-2020 'professionalization' of PE ops occurred during an unprecedented period of zero-interest rates and abundant debt. This makes it difficult to determine if strong fund returns were caused by skilled operators or simply favorable market conditions and easy leverage, questioning the true value-add of these teams.
KKR pioneered the internal consulting model in 2000, creating a 'mini-McKinsey' for its portfolio. This was highly innovative but led to an SEC lawsuit over billing transparency. The settlement, while painful for KKR, created the regulatory playbook for how other firms could structure similar ops teams.
A key distinction for effective operators is between 'helping' (e.g., filling a vacant FP&A role) and 'propping up' (e.g., building the budget for the head of FP&A). Propping up does the manager's job for them, masking underperformance and indicating a bad hire. The goal is talent selection, not rehabilitation.
The current trend of small and mid-size PE firms building large, siloed ops teams that mimic mega-funds is unsustainable. The speakers predict a market correction toward smaller, more effective, and more deeply integrated operating teams as firms and CEOs realize the current model is often inefficient.
As PE ops became popular, a contrarian fundraising pitch emerged. Some firms argued against having an internal ops team, claiming their presence signals a lack of trust in the portfolio company's CEO and can hinder productivity. This positioned them as more 'hands-off' and management-friendly investors.
Ops teams structured as internal consulting groups have an incentive to maximize billable hours. This can lead them to 'find projects' or do a manager's job, which props up underperformers and masks fundamental problems from the investment team, who ultimately decides if that person should keep their job.
The modern era of PE ops is defined by a move away from generalist ex-consultants. Firms now hire deep functional specialists focused on areas like finance or go-to-market. In Chicago alone, the number of finance-specific ops roles exploded from roughly 15 to over 60 in just a few years.