Having partnered with James Curtis, Practice Lead of Executive Search at Allura Partners, Stephen O'Carroll, Operating Partner at Allegro Funds, shares what his role really involves, why emotion drives change more than logic, and how to break in.
Some of the most interesting roles in private equity are also the least understood. The operating partner is one of them. Sitting somewhere between shareholder, coach, board member, and confidant, for Stephen O’Carroll from Allegro Funds, this is without doubt the best role he has ever had.
Stephen’s path to operating partnership has been anything but linear. Born in New Zealand, he began his career in London as a private investigator before falling, almost by accident, into consulting via a temping agency. From there he moved through technology, strategy, and a boutique consulting firm founded by two former McKinsey partners who had spotted a gap: the translation layer between strategy and execution.
“You can read a strategy document, agree with every word, and still have no idea where to begin,” he observes. Bridging that gap, first on large transformation programs in London, later at McKinsey and inside industry in Australia, became Stephen’s passion. And the role of operating partner within private equity at Allegro Funds is where everything he has learned has finally converged.
There are few operating partners in Australian private equity – it’s more common in the United States – which means there’s a lack of clarity around what the role entails. Not for Stephen. Asked to define it and he doesn’t hesitate. “It’s about bringing absolute clarity on direction, objectives, and what success looks like, then supporting a management team to get the most out of themselves and their people to deliver it,” he says.
To add colour he says, “a lot of what we do is emotional support,” and he means it. When Allegro acquires a company, the areas requiring action are usually the very things the management team has never implemented and has little to no knowledge of. That means much of Stephen’s work is “helping capable people build the confidence to attempt something unfamiliar and creating the safety for them to admit when they need help”.
He recalls reassuring a newly promoted executive that there was no shame in putting his hand up about the parts of the role he had never done before. “As long as we’re honest, then we can help you,” he says. “The worst thing that can happen is staying silent.”
Stephen says this is where Allegro’s approach diverges from the popular caricature of private equity – the assumption that a PE takeover means slashing costs, sacking staff, and funding reckless bets from bottomless pockets.
“We are backed by superannuation funds, sovereign wealth funds and private investors,” he explains. “It’s real people’s money we’re investing, so we have to be super careful about what we back and how we fund it.”
Cost-cutting is where the difference shows most clearly. “Some consultants – or even PE firms – might walk into a company and say, ‘you need to cut costs by X%’ and then leave them to work it out. We’ll sit down and say, ‘we need to take a meaningful amount of cost out, here’s what we’ve seen work elsewhere, let’s explore it together’.”
He calls this “active complex transformation”, and the emphasis falls on active: “We do ask our management teams to do a lot of work, but we do it with them.”
Two things make this possible – Allegro owns the business, and it cares about more than the financials.
“Unlike an external consultant, I walk in as a shareholder and a partner. They know I have as much skin in the game as they do; that all our futures hinge on how successful we are together; that we’re trying to create wealth for everyone involved.”
“But I’m not one of those private equity people solely fixed on the exit dollar. I believe you can’t have wealth without legacy. It’s about building a culture where people want to go above and beyond. If I can create that environment, that’s where I create value as an operating partner.”
Stephen also observes the need to build trust and overcome any anxiety within freshly acquired companies by quickly building subject matter credibility through curious, probing questions, and taking time to understand and celebrate the organisation’s history so people know he respects where they have come from.
Engaging with leaders and gaining their trust quickly comes naturally, he says, because “I’ve literally been in their shoes”.
However, it’s something that he admits he underrated early on. “I used to get frustrated when sound logic went nowhere, until I realised that logic doesn’t win arguments, emotions do.
“When you’re advising on change, a purely data-driven recommendation is frequently heard as a criticism, no matter how innocently it is offered. Framing change as a path that will take them from good to great earns the buy-in; it’s what turns a plan into something a team genuinely owns.”
With roles for operating partner in Australia relatively few and far between, it can be difficult to break in. Stephen advises on two potential paths:
The first is to become highly specialised in a particular role such as finance or technology leadership. “These people have had very senior roles across a variety of different businesses. They’ve gone from company to company, working through major problems and large-scale transformations within a specific function.”
“The other path, classically, is through consulting – people who’ve led clients through a wide variety of problems.”
“Ultimately, you’ve got to be able to sit on a board and hold your own; sit in a room with the CEO who’s been in the business for 15 years and knows more about the industry than you ever can possibly but still be able to go toe-to-toe and have a robust discussion about any particular direction.”
Additionally, he says “you have to have a really clear idea of your individual strengths… where your power comes from to actually drive change”.
Having secured his own Allegro appointment through Allura Partners, he has no doubt that it’s a role worth pursuing: “No two days are the same, there is no selling involved, and the agenda is honest. It is a dream job. It’s constantly challenging, and that’s why we love it.”