The High-Stakes Stress of Private Equity: Managing Underperforming Investments

Private equity (PE) is a high-risk, high-reward business. When investments perform well, PE professionals reap financial and reputation rewards. But when a portfolio company underperforms, the pressure can be intense. The stress of managing a struggling investment is immense, affecting financial returns and relationships with LPs, portfolio company leadership, and internal teams.

The Unique Stressors in Private Equity

Unlike public market investors, PE professionals actively participate in their investments, often steering strategic direction, replacing leadership teams, and making operational changes. When things don’t go as planned, stress builds from multiple sources:

1. Financial Pressure

Underperformance threatens fund returns, carried interest payouts, and future fundraising efforts.

 If a deal was highly leveraged, debt servicing becomes a major issue.

2. Reputational Risk

PE firms live and die by their track record. A failed investment can damage credibility with LPs and impact future capital-raising efforts.

• Partners and deal teams face internal scrutiny, particularly if they championed the investment.

3. Operational Challenges

Managing an underperforming company requires deep engagement, often leading to long hours, conflict with management, and pressure to turn things around fast.

 Board meetings become battle zones as PE professionals demand aggressive performance improvements.

4. Relationship Tensions

Friction often arises between PE professionals and portfolio company CEOs, ,especially when results fall short.

Key tensions include:

·      CEOs resisting cost-cutting or restructuring plans

·      Disagreements over strategic direction

·      PE firms pressuring for faster results than operational leaders believe is possible

5. The Emotional Toll

Fear of failure is real, especially for younger professionals who have built their careers on successful deals.

The high-pressure always-on culture in PE makes stress management difficult. Many internalize their anxiety, fearing it may be seen as a weakness.

How PE Executives Can Manage the Stress of Underperformance

Underperforming investments are part of the PE business. The best professionals don’t just react, they manage stress strategically and systematically.

1. Identify Problems Early

The worst-case scenario happens when underperformance is ignored or downplayed for too long.

 Frequent and honest reporting, even if the news is bad, prevents crises from escalating.

2. Adjust the Strategy Not Just the Expectations

When a company is missing its targets, it’s tempting to just push management harder.

 But real value creation comes from adapting strategy, whether through operational shifts, pricing changes, or leadership adjustments.

3. Make Tough Calls Quickly

 Replacing leadership is one of the hardest but most effective ways to turn around an underperforming company.

Delaying personnel changes due to loyalty, fear of disruption, or sunk-cost bias only worsens the situation.

4. Manage LP Expectations Proactively

LPs expect challenges, but they hate surprises.

Regular, transparent communication about struggling investments maintains trust and credibility.

5. Use Support Systems

Senior partners, portfolio operating teams, and external consultants can provide guidance and help share the burden.

Executive coaching can help PE professionals manage pressure, make better decisions, and avoid burnout.

6. Prioritize Personal Resilience

Many PE professionals ignore their own stress levels until they reach burnout.

Regular exercise, mindfulness, and professional coaching can help maintain performance under pressure.

Final Thoughts: The Best PE Executives Handle Pressure Strategically

Underperforming investments are an inevitable part of private equity. The difference between top-tier PE professionals and those who burn out lies in handling stress, adapting their approach, and maintaining resilience.

If you’re managing a high-pressure situation in a PE-backed business, Portobello Advisory can help. Our coaching and advisory services provide strategic guidance, leadership support, and stress management techniques for PE professionals and portfolio company executives.

Let’s talk. Reach out today to see how we can help you navigate the pressures of private equity.