Portfolio value creation in the age of AI

Today, outperformance is no longer defined by market timing or leverage

With holding periods reaching record highs, the "edge" is moving elsewhere: to a systematic operating model built on AI-enabled execution and portfolio velocity.

As previously reliable tailwinds—low interest rates, multiple expansion and a deep pool of buyers—begin to fade, the current environment presents a tighter operating reality. Higher-for-longer rates and compressed exit markets have reduced tolerance for operational drift. Average holding periods have stretched to 6.6 years, the longest on record (Pitchbook).

Holding assets for longer is forcing a shift from "investor" to "operator." For General Partners (GPs), the implication is clear: outperformance now depends on deliberate, sequenced decision-making rather than broad adaptability. The market no longer rewards firms that "try a bit of everything." Instead, it favors those that can translate an investment thesis into EBITDA impact: quickly, repeatedly and across the portfolio.

The return equation: EBITDA and time to impact

Longer hold periods have made time the most expensive commodity in the PE lifecycle. The opportunity cost of slow value creation compounds; delayed initiatives eventually collide with refinancing windows and leadership turnover.

In response, we are seeing a fundamental reweighting of the return equation. GPs are adjusting expectations in two practical ways:

• From aspirational to executable: Value creation plans (VCPs) must be rigorously mapped with owners, timing and dependencies before the deal even closes.
  
  
• From episodic to institutionalized: The "year-two kickoff" for cost transformation is no longer viable. Operational excellence must begin on Day 1.

Leading firms are responding by deploying repeatable models—shared services, procurement transformation and ERP modernization—that scale across mid-market portfolios and deliver measurable, bottom-line impact. The question is no longer "What is the thesis?" but "How quickly can the system convert that thesis into results?"

AI as the core operating stack

AI has migrated from experimentation to infrastructure, becoming a core component of the PE operating stack. Its value is concentrated on the industry’s most persistent bottlenecks: decision speed, diligence quality and portfolio productivity.

The conviction is already there: 70% of M&A executives believe Gen AI can directly enhance returns, while 90% point to higher-quality diligence as the primary driver of an executable VCP.

This shift is operational. GPs are moving past proof-of-concepts toward deployable AI applications. In this respect, we see PE outpacing corporate acquirers in embracing AI and building it into the value creation thesis.

This is not a cyclical upswing but a structural build-out. As capital continues to flow into the sector, differentiation comes down to two factors: disciplined entry pricing and the ability to execute. In practice, operating under constraint means securing power, building faster and more cost effectively, and driving ongoing operational efficiency.

For Investment Committee (IC) discussions, it helps to treat digital infrastructure less like a static asset class and more like an operating business. The focus is on three levers:

Improving these levers does more than reduce operating costs: it lowers future capital intensity, a critical factor for later-cycle owners.

Complexity as alpha: The carve-out factory

As the search for alpha continues, PE firms continue to view M&A as a more systematic source of growth. This is particularly visible in the rise of complex carve-outs and buy-and-build platform strategies. Carve-out deal volume rose 9.6% in 2025, led by Energy and Utilities with 21 deals totaling $7.2B. More broadly, PE-backed divestitures have increased 34% as a share of total deals between 2023 and 2025 (S&P CapIQ).

Signals point to a continued wave of corporate divestitures, and the drivers are getting stronger. First, corporate reinvention is accelerating, increasing pressure to divest non-core assets and redeploy capital into priority growth areas. At the same time, regulatory and antitrust remedies are creating incremental, “forced” divestitures. In addition, macroeconomic, tariff and geopolitical volatility are prompting more frequent portfolio reviews. The net result is that the pool of carve-out targets remains deep, favoring funds that can separate, integrate and stabilize assets faster and better than competitors.

In carve-outs, speed becomes pure economics. Day 1 readiness, exiting Transition Service Agreements (TSAs) ahead of schedule and ERP stabilization determine whether a deal produces value or consumes management bandwidth. Leading firms are operating with a "factory" mindset: industrializing the carve-out process with repeatable playbooks and standardized execution pods to compress risk and time-to-value.

Industrializing the model

Advantage now accrues to firms that view their portfolio as a system, not a collection of discrete investments. The edge in this tighter reality is found in institutionalizing how value is created and scaled. 

The era of financial engineering has given way to industrialized value creation. The firms that lead will be those that build the operating spine to execute: consistently, quickly and at scale.