How does a firm know that it has the right person in the leadership chair for the Portfolio Operations team?  I occasionally get asked this question and TBH there’s not one foolproof way to answer it.  Many factors will influence your decision, but perhaps keep in mind some of the below points and themes.

1.  It is not unusual that over time as a group evolves it demands a different set of expertise to lead it through that evolution.  That being said, I NEVER underestimate the value of time served and knowing how things get done inside a particular shop.  In many cases, a current leader has been a wonderful partner for you as you’ve established this function… they’ve built great political capital, understand the personalities involved, have seen the wins (and losses) occur, and has your confidence. For many teams, this combination of traits would be enough to let him/her lead it until such time as they retire (particularly if you don’t anticipate any big strategic shifts in your model/scale).  Many times, clients go with “the devil they know” and don’t look to introduce any risk into the equation (no matter the upside that it may represent).
   
   
2.  Some leaders still serve as an individual contributor in delivering value creation across certain portfolio companies.  Many firms do not want to take that person off the playing field.  Moreover, it could be the case that it’s the actual work with the port co’s that he/she likes the most.  Thus, if we assume that both those are true, perhaps there are opportunities around new leadership for firms to consider that allow everyone to stay in their lane of highest and best use.
   
   
3.  As you would imagine, in most firms, the Head of Portfolio Operations is someone senior who has a stature and gravitas that creates seamless credibility across three dimensions: (1) with the Deal Partners inside the GP; (2) with the portfolio company CEOs and (3) with the LP base.  He/she provides “value” in numerous ways which impact the firm as a whole.  They serve on the Investment Committee, they coach the younger team members, they organize the Group’s strategy and deployment model, and they represent the firm externally.
   
   There are numerous people throughout the industry who have been serving in the leadership seat for a long time but who were this combination of stature and gravitas from the beginning: many examples come to mind and you know who you are.  
   
   
4.  There is value to be had in a leader who was not “raised in captivity.”  Having someone who’s been exposed to more than one Operating model is a plus.  The role of modern Portfolio Operations has been around for about 20 years now.  Like anything else, over time, you’ve had people compile career experience that crosses over more than one employer.  We’ve settled into a time where there is such a thing as Best Practices and GPs can acknowledge that there’s value in understanding how other shops do things related to portfolio ops.  Ten years ago that might not have been the case, but it will be going forward.
   
   
5.  I can easily think of three very successful analogs to the “grew up in the firm” archetype within my own client base.  Each of these gentlemen all came up inside their respective systems.  What do they have in common? They are all quintessential servant-leaders whose combination of style and impact have allowed them to scale up into their current roles. They have each been able to morph as their shops have significantly increased in size and complexity, and dealt with their own generational leadership transitions.  This is a politically astute tap dance to master, to be sure.
   
   
6.  That said, the vast majority of people in Group leadership roles have come in from outside the firm.  The list is long … I’ve personally placed people into those roles at numerous bulge bracket and middle market firms.  When you look across the landscape of the 1000s of PE firms in North America you’ll find that most in this particular chair came from outside the organization.  Now, in no way does that insure success for that person, but it does indicate a condition across the industry that has become the reality…. A condition that exists for very valid reasons related to supply.
   
   

As you read this, I’m sure that you recognize your own teams’ strengths and weaknesses.  No one is perfect and perhaps your leader overachieves in certain elements and underachieves in others.  All that being said, if you continue to be interested in evaluating what makes the most sense for your shop going forward, take a deep dive look at some of the above factors and be honest with yourself about what they embody.  Maybe there’s a dynamic where the current person stays and continues to drive value but where you can bring in a new voice who can take things on for the next generation of growth.