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How Culture Drives Performance in Private Equity GPs

by Preqin

  • 13 Dec 2019
  • PE
  • VC

A “strong culture” is essential for fund managers to be able to add value to their investee companies, says Mekong Capital.

By Chris Freund, Partner, Mekong Capital

 

A strong culture built on intentional core values matters in any business. We hear from Partner Chris Freund on the three core values that have helped Vietnam-focused private equity firm Mekong Capital to drive performance at investee companies.

1. Responsibility
Until 2007, Mekong Capital faced a lot of difficulties. Few to none of our investee companies were achieving their targets and profit was not growing. Every year, members of our investment team were buying into excuses such as “it was a difficult market this year,” or “someone else got us into this mess and I’m not responsible.” 

Responsibility, by our definition, is a point of view whereby a person can choose that he/she is the cause, rather than the effect, of what he/she is dealing with. Another way of saying this is that he/she is the source of what’s happening, rather than a victim of the circumstances. Being at the source of something is a choice, and it provides access to taking new actions, and therefore getting new and better results.  

These days, here at Mekong Capital, our Deal Leaders are personally committed to their investee companies achieving their long-term vision or goals, and our Deal Leaders see themselves as personally responsible to do whatever it takes to make that happen. When something is off track, the Deal Leaders look for how it all started with them, perhaps a missing action, a missing conversation with the CEO, some attempted action that didn’t work, etc. This context of being responsible for the outcome of the investment gives our deal team an opening to take action and try new things, and to keep doing it until the goals are achieved.

2. Integrity
Before integrity existed in our organization, most of our team were dropping the ball. Work was committed to but not done, projects were constantly delayed, and quality suffered. I had to get involved personally in so many things to make them happen to the expected standards. It was more than I could handle, and I was a bottleneck. Running from one fire to the next.

Integrity, by our definition, is a choice that a person makes in which he/she chooses to honour his/her word and be reliable. This means to honour their promises and deliver on their job accountabilities. Where there is a culture of integrity in an organization, people can delegate to and rely on one another. Everyone can then work together smoothly towards shared goals.

These days, team members are clear on what they are accountable for and know to deliver work to a high standard. This allowed the senior team members to delegate more, effectively removing bottlenecks in our organization.

At Mekong Capital, we see problems as ‘breakdowns,’ where someone announces they are unlikely to be able to deliver a goal to which they had committed. Instead of relating to those as problems to be avoided, we welcome those ‘breakdowns’ and treat them as opportunities to identify new insights that lead to lasting breakthroughs in performance.

3. Communication
In Mekong’s early years, our team members thought it was their top priority to maintain a good relationship with the investee companies, so they would avoid saying something that might upset the senior management. Unfortunately, this meant tolerating all kinds of things that were missing or not working, and so performance stayed poor at those companies.

Direct communication, by our definition, is communicating in the most clear, concise and direct way possible so that the exact issue that needs to get handled is fully handled. Complete communication, as we see it, is also fully listening to other people and ensuring that they are accurately understood. It’s not avoiding anything, but rather it is putting on the table whatever is missing, not working, or in the way. It is staying in the conversation until those issues are fully handled.

Today, our investment team is clear that their priority is that the investee company will achieve its goals, and that direct and complete communication is essential for handling whatever needs to be handled. Our team gets right to the point and get things handled quickly and efficiently. When there is an elephant in the room, and everyone is ignoring it, our job is to put words to it until it’s fully handled. Quite often it’s in those blind spots – where companies are avoiding dealing with something – where the biggest opportunities for performance improvement are hiding.

Walking the Talk
In our investee companies, strong culture and core values certainly drive performance as well. The culture we’ve created in Mekong Capital serves as a model for our investee companies of what it looks like when a strong culture provides the foundation for team members to be more empowered, independent and effective at delivering results, and to be able to rely on each other to achieve shared goals.

Now there are companies in Vietnam like MobileWorld (an investment which resulted in a 57x return for Mekong Enterprise Fund II), and F88 (revenue grew at CAGR of 123% since we invested in 2015-2019), which have gone on to build a strong culture and use it as their key competitive advantage.

 

 Mekong Capital is a Vietnam-focused Private Equity firm, specializing in consumer-driven businesses. Mekong Capital’s investee companies are typically among the fastest-growing and market-leading companies in Vietnam’s consumer-driven sectors such as retail, restaurants, consumer products and distribution

 

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