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Operating Partner vs. Portfolio CEO: Who Owns the Value-Creation Plan?
An operating partner can design the plan, challenge it and lend the company skills it lacks. If management does not end up owning the result, the company is borrowing performance that a buyer will not pay full price for.
By Gaurav Shah
Managing Partner, Arete Ventures
Published August 2026
Updated November 2026 · 10 min read
The improvement that continues after the sponsor’s support ends. Illustration: Arete Ventures.
In Brief
Split the rights. The sponsor owns the thesis, the board owns the CEO decision, the CEO owns operations, and the operating partner holds a right to intervene within agreed limits.
Borrowed execution is performance that depends on the sponsor’s people. A buyer will ask who runs it after closing, and discount what leaves with the sponsor.
Every intervention needs an exit condition agreed at the start: what will be handed over, to whom and by when.
When hiring an operating partner, match the profile to the firm’s operating model, and take references from the portfolio CEOs who worked with the person.
I was an operating partner for sixteen years, running and improving the companies my firm owned. The hardest discipline in that seat is knowing when to stop. An operating partner usually sees the problem early, often knows how to fix it and has the sponsor’s authority behind them. Fixing it yourself is fast. It is also how a portfolio company ends up with two CEOs, one of whom will leave when the fund sells.
The question of who owns the value-creation plan sounds like a governance formality. In practice it decides two things a sponsor cares about: whether the CEO can be held accountable for the result, and whether the improvement survives the sale.
The best test of an operating partner’s work is what the company can still do after the operating partner stops doing it.
Four Rights, Four Owners
“Who owns value creation” mixes several different rights. Separate them and most of the friction between the operating partner and the CEO becomes easier to resolve.
Exhibit 1
Who should hold each right
Right
Who holds it
What it means in practice
The investment thesis
Who holds it: The sponsor and its deal team
In practice: Entry price, capital structure, the main value levers and the return that depends on them
The CEO decision
Who holds it: The board
In practice: Appointing, judging and if necessary replacing the CEO, and approving major capital decisions
Running the company
Who holds it: The CEO and management
In practice: Allocating people and money inside the company and owning the operating results
Intervention
Who holds it: The operating partner, within agreed limits
In practice: Challenging the plan, raising risks early and bringing in skills the company lacks, with a defined handover
Source: Arete Ventures.
The operating partner’s right is the one that needs limits written down. An operating partner should be accountable for whether the intervention was well diagnosed, whether the right skills were brought in and whether the company was more capable afterwards. The operating result itself stays with the CEO, because the CEO is the one the board will judge.
When the Operating Partner Becomes a Shadow CEO
Close involvement is often exactly what an asset needs. The warning sign is confusion about who decides. Three signals tell you it has started.
Executives go to the operating partner before the CEO. If the CFO or the head of sales routinely checks with the sponsor’s team first, the organization chart no longer describes the company.
Management serves two principals. The deal partner pushes growth while the operating partner pushes margin, and the CEO spends the quarter reconciling them. That looks like indecision in the CEO and is really a disagreement inside the sponsor.
The CEO owns the result and has lost control of the means. A board cannot fairly judge a CEO on targets while the sponsor’s team controls pricing, hiring or capital decisions underneath them. If it does, the next CEO review will be about the wrong person.
Borrowed Execution Has a Price at Exit
Sponsor resources can create what I call borrowed execution: results that depend on people or tools the company does not own and will not keep after the sale. A sponsor pricing analyst who still runs the price model, a procurement specialist who leads every supplier negotiation, a talent partner who has made every senior hire. Early in the hold, borrowing makes sense. The company gets the skill faster than it could hire it. The problem is borrowing that never declines.
Buyers find it. A quality of earnings team and a buyer’s operating partner will ask who runs each improvement after closing. Anything that leaves with the sponsor is treated as at risk.
A worked example · Illustrative
What Borrowed Execution Costs at Exit
The numbers are invented to show the arithmetic and describe no real company.
A sponsor has added $12 million of EBITDA to a portfolio company over the hold. Management runs $7 million of it: plant productivity, a new sales structure and working capital controls. The other $5 million comes from pricing and procurement work still run by the sponsor’s portfolio team. The company is sold at 10x.
$12 million
EBITDA added over the hold
$5 million
Run by the sponsor’s team, leaving at closing
$25 million
Value at risk if the buyer credits only half of it
A buyer credits the $7 million that management runs. For the $5 million that depends on the sponsor’s people, a careful buyer will either reduce the price or demand a transition. If it credits half, $2.5 million of EBITDA and $25 million of value are lost at 10x. Moving the pricing model and the supplier negotiations into the company a year before the sale, with named owners and their own results, costs far less.
Incentives and the Board Seat
Two structural facts push operating partners toward the CEO’s job, and boards rarely discuss either. The first is pay. An operating partner is usually rewarded through the fund, often with a share of carried interest, while the CEO is rewarded through the company’s equity. The fund rewards visible wins across the portfolio within the fund’s life. The CEO is paid for this company’s value at exit. Those two clocks pull in different directions, and the operating partner’s is the one that favours doing the work personally and quickly.
The second is the board seat. An operating partner who sits on a portfolio company’s board owes duties to the company as a director. A director who also directs day-to-day operations blurs the line between oversight and management, and makes it harder for the board to judge the CEO honestly. If the operating partner holds a seat, write down which operating decisions they will stay out of.
Every Intervention Needs an Exit Condition
Most interventions are defined by what they will do. Few are defined by how they will end. Before a material sponsor-led initiative starts, the board should agree on what problem it solves, what authority the operating partner has, who in the company will own the result and by when the handover happens.
The natural sequence is to diagnose, install, hand over and withdraw. Withdrawal does not mean the sponsor disappears. The operating partner returns to challenge and governance, and the company runs the improvement as part of its normal work. Some skills are better kept at the sponsor by design, such as cybersecurity or specialist data work shared across the portfolio. Then the dependence should be stated openly and priced in the equity story.
A simple board test shows where authority really sits. Take a material operating decision and imagine the operating partner is not in the room. If the CEO would make it, the CEO should own it. If the board would make it, the board should govern it. If nobody would make it without the operating partner, the company has a gap to fill, and it may be a leadership gap the board has avoided addressing.
When to Step In, and When to Step Back
Step in when the investment case is at risk and management cannot find the cause fast enough, or when a skill does not justify a full-time hire in one company. A CEO who asks for help on a specific problem is also a good reason to act.
Step back when management has absorbed the skill, or when the sponsor’s review starts slowing decisions management could make alone. A company that starts managing the sponsor instead of its customers is another sign. And watch for the operating partner who keeps making the same kind of decision in the same company. That pattern usually means a leadership problem below or at the top, and fixing it with the right hire is cheaper than permanent intervention. Our note on whether the CEO is failing or the investment thesis is wrong covers that diagnosis.
Hiring an Operating Partner
The title covers very different jobs. A firm that wants repeatable methods across thirty companies needs a different person from a firm that wants a hands-on operator inside three difficult assets. Start the search from the firm’s operating model.
Exhibit 2
Operating partner profiles, and the risk in each
Operating model
Where the profile adds value
The risk to test for
Portfolio-wide system builder
Where it adds value: Repeatable methods, tools and benchmarks across many companies
The risk to test for: Standard methods applied where a company needs judgment
Functional specialist
Where it adds value: Deep skill in pricing, procurement, finance, data or talent
The risk to test for: Improving one function without owning the whole result
Former CEO as challenger
Where it adds value: Enterprise judgment and credibility with management
The risk to test for: Drifting into the shadow-CEO role
Hands-on operator
Where it adds value: Deep work inside a few complex or underperforming companies
The risk to test for: Dependence, if the handover never happens
Source: Arete Ventures.
The references that matter most come from the portfolio CEOs the person worked with. Ask them which decisions the operating partner took over, whether the company kept the change after the operating partner moved on, and whether they would want that person back on their board. Results that survived the operating partner’s departure are the best evidence of the job done well. That is how we assess finalists in every operating partner search we run.
LPs ask a related question in diligence. Does the firm’s operating capability belong to the firm, or to one star operator? Ask what happens when the deal partner and the operating partner disagree, and whether the companies kept their improvements after exit.
Frequently Asked Questions
What does a private equity operating partner do?
An operating partner helps a sponsor improve the companies it owns. The work includes testing the value-creation plan and bringing in skills a portfolio company lacks, such as pricing or procurement. The operating partner works through the CEO and the board, and should leave each company more capable than it found it.
Who owns the value-creation plan in a PE-backed company?
Ownership is split. The sponsor owns the investment thesis, the board owns the decision about the CEO, and the CEO and management own execution and the operating results. The operating partner holds a right to intervene within agreed limits, with a defined handover to management.
When should an operating partner step in at a portfolio company?
When the investment case is at risk and management cannot find the cause fast enough, or when the company needs a skill that does not justify a full-time hire. A CEO’s request for help on a specific problem is also a good reason. Each intervention should have an exit condition agreed at the start: what will be handed over, to whom and by when.
How can a board tell if an operating partner has become a shadow CEO?
Executives go to the operating partner before the CEO, management receives conflicting instructions from different sponsor team members, or the CEO is held to targets while the sponsor controls the decisions underneath them. A simple test is to ask who would make a decision if the operating partner were not in the room.
What should a PE firm look for when hiring an operating partner?
A profile that fits the firm’s operating model, whether that is portfolio-wide methods, a functional specialty, enterprise judgment or hands-on turnaround work. The best evidence comes from references with portfolio CEOs: which decisions the person took over, and whether the company kept the improvements after the operating partner moved on.
If the improvement leaves when the operating partner does, the sponsor has sold a buyer something it no longer owns.
Arete Ventures runs private equity executive search for sponsors and their portfolio companies. Every search is led by Gaurav Shah, who sits on private equity and venture capital investment committees and spent sixteen years as an operating partner running the businesses his firm owned.