The CEO Decision: How PE Investors Select and Reassess Leaders from Entry to Exit

For much of the past decade, private equity (PE) performance has benefited from favorable market conditions. Cheap financing, easy multiple expansion and relatively short hold periods meant that even subpar execution could produce attractive returns.¹ These conditions peaked in 2021 and early 2022, when abundant capital, intense competition for assets and supportive financing markets drove deal activity and valuations to record levels. Many sponsors moved quickly to acquire companies at elevated entry multiples and underwrote ambitious growth plans.

Since then, the operating environment has become far more challenging. Higher interest rates, more volatile financing conditions and uncertain exit markets have coincided with geopolitical uncertainty, tariffs and supply chain disruption, and rapid advances in AI. Together, these forces have altered many of the assumptions underpinning investment theses developed at the height of the market.

This more demanding environment has increased the importance of strong, adaptable leadership. As hold periods lengthen and market conditions evolve, sponsors need chief executive officers who can lead through multiple phases of the investment lifecycle, reset priorities, and adjust the value creation plan when the original thesis no longer fits the circumstances.

The right CEO creates measurable impact. Top-quintile portfolio company CEOs generate annual shareholder returns approximately 9 percentage points above industry peers.² General partners (GPs) themselves attribute more than half of investment returns to portfolio company leadership, making it their highest-rated lever for value creation.³ That significance cuts both ways: The right CEO accelerates value creation, while the wrong one can become one of the greatest sources of investment risk.

To understand how sponsors deploy this leadership lever, Russell Reynolds Associates analyzed more than 200 European PE exits completed from 2020 to 2025 by GPs managing funds of more than €5 billion. Across the 196 companies where CEO succession and executive career histories could be mapped reliably, we tracked leadership transitions from acquisition through exit and linked CEO hiring decisions to investment outcomes, focusing specifically on hold period duration.

We supplemented the quantitative findings by interviewing PE investors and operating partners, who provided additional context on CEO selection and succession decisions.

Our findings challenge a common assumption: CEO turnover itself does not appear to be an inherent problem, and a single transition is associated with almost no difference in average hold period. The greater risk arises when a foreseeable change is delayed, repeated or becomes reactive.

Why year two becomes the decision point

The concentration of CEO appointments after year two is consistent with broader market evidence. AlixPartners found that CEO turnover in PE-backed companies typically peaks around the second year of ownership, after management teams have had 12 to 18 months to execute the value creation plan.⁴

For many investments, the first 12 to 24 months provide the evidence required to assess the investment thesis and the incumbent leadership. Reporting cycles, board interactions and operational milestones reveal whether the CEO can deliver on the value creation plan and lead the business through its next phase. A leader who effectively stabilizes a company may be less suited to accelerating growth, executing acquisitions or preparing for exit.

This mismatch becomes more likely when market conditions alter the original value creation plan. Longer hold periods and greater economic uncertainty require CEOs who can adapt across multiple phases of ownership rather than excel in only one set of circumstances.

The appointment date, however, doesn’t necessarily indicate when the decision to change was made. An external search may take three to six months, followed by notice periods and non-compete restrictions of another six to 12 months. A CEO named 18 months into the hold may result from a search initiated shortly after acquisition. The start date marks the conclusion of the succession process, not the beginning of the sponsor’s decision-making.

Year two can therefore represent either a natural reassessment point or the visible conclusion of a succession process initiated much earlier. The critical issue isn’t whether a CEO starts before or after year two but whether the sponsor identifies the need for change early enough to protect the investment thesis.

The investment risk is lost time, not CEO change

A single CEO transition is rarely a problem

A single change in leadership was associated with almost no difference in average hold period: 5.5 years for companies that retained the acquisition CEO and 5.8 years for those that made one change.

However, the pattern shifted sharply once succession became repeated. Average holds rose to 8.5 years with two CEO changes, 9.2 years with three and 11.0 years with four (Figure 3A).

The apparent cost, therefore, lies not in succession itself, but in repeated leadership resets. Each transition can disrupt strategic continuity, delay execution and require boards and management teams to realign around a new leader.

The relationship between leadership changes and hold periods is associative rather than causal, as repeated changes may also indicate a more difficult underlying investment case. Even so, the data and interviews point in the same direction: one timely and decisive transition can preserve momentum, while repeated resets compound existing execution and market challenges.

_{Source: RRA analysis of CEOs appointed into PE-backed businesses that underwent an exit event between 2020 to 2025 (Figure 3A N=196 of 196, Figure 3B N=135 of 196)}

Earlier appointments are associated with shorter holds

Companies that appointed a new CEO during the first year exited after 4.4 years on average, compared with 7.7 years when the appointment occurred after year two (Figure 3B).

Despite this similarly strong association, the comparison also requires caution. The sample covers exits completed from 2020 to 2025—an unusually volatile period that may have affected both succession timing and hold duration. The finding should therefore be interpreted as directional rather than causal.

The investor implication is nevertheless clear. The cost may lie less in changing the CEO than in delaying action once a leadership mismatch becomes apparent. Sponsors that act decisively can preserve momentum behind the value creation plan. Those that hesitate risk spending successive reporting cycles trying to recover execution before ultimately making the same change under greater pressure.

These findings are consistent with broader market evidence. AlixPartners reports that 83% of PE investors believe unplanned CEO turnover lengthens hold periods, while nearly half say it also reduces returns.⁵ Taken together, the evidence suggests that leadership transitions aren’t inherently costly. The greater risk arises when a foreseeable change is delayed, repeated or allowed to become reactive.

CEO archetype alone doesn’t predict returns

The available data doesn’t indicate a robust relationship between CEO archetype and investment returns. Differences in sector mix, geographic exposure, deal complexity and other investment characteristics make it difficult to isolate the effect of CEO profile from the wider factors influencing performance.

Each archetype included both exceptional exits and value-destroying investments, and no single profile consistently outperformed the others in our sample. Outcomes appear to depend less on archetype alone than on whether the CEO’s capabilities match the investment thesis and whether the leadership decision is made at the right time.

Why good sponsors still delay action

The evidence suggests that delay is costly and that the industry recognizes the problem. Every investor and operating partner interviewed emphasized the importance of leadership due diligence and the need to improve the success rate of CEO appointments. Yet the more difficult challenge may be structural. The investment approval process can make leadership concerns harder to surface once a deal has been signed.

By signing, the investment committee (IC) has typically approved a price above competing bids, the deal team has built a relationship with the incumbent CEO, and both have endorsed the asset, the value creation plan and management’s ability to deliver it. Raising concerns about the CEO at signing, or soon after completion, can therefore feel like reopening a central assumption of the underwriting. It raises two uncomfortable possibilities: Either the leadership requirement has changed, or from the outset the deal team misjudged the capabilities required.

Replacing a CEO is costly, disruptive and time-consuming. Deal teams may therefore wait for another quarter, budget cycle or set of year-end results before escalating concerns to the same committee they persuaded to approve the investment. What begins as prudent evidence-gathering can become a bias toward delay, allowing a manageable leadership mismatch to develop into a broader value creation problem.

Underwriting the CEO

Leadership should be underwritten with the same rigor as every other component of the investment thesis. CEO selection isn’t a year-two portfolio management issue. It’s one of the earliest and most consequential investment decisions a sponsor makes.

Diligence has broadened considerably. Bain & Co.’s full potential due diligence framework encourages sponsors to assess an asset’s commercial, operational, technology, AI and digital, and sustainability potential before signing (Figure 4).⁶ Every one of these workstreams produces a plan, each which is only as executable as the CEO and leadership team responsible for delivering it. Our findings suggest that leadership should be assessed with equal prominence (Figure 4).

Figure 4: Value creation and leadership diligence framework
What is the company’s full potential?

Leadership diligence turns on four questions before acquisition:

1. Thesis fit: Does the incumbent CEO have the capabilities to execute the value creation plan?
2. Gap closability: Where gaps exist, can the incumbent close them quickly enough, or will a successor be required?
3. Succession optionality: What credible succession options exist inside and outside the organization?
4. Requirements evolution: How might the leadership requirements change across the investment lifecycle?

Answering them in diligence lets sponsors test the leadership assumptions beneath the investment thesis, identify succession options early and act before execution drifts. It turns CEO selection from a reactive portfolio intervention into a term of the underwriting.

Beyond due diligence: The CEO decision playbook across the investment lifecycle

Endorsing the CEO at entry is the starting point of the leadership decision, not the end of it. As the business moves through the first 100 days, growth, transformation and exit preparation, the capabilities required of the CEO may change. Sponsors should reassess leadership fit at every stage of ownership, using predefined review points and decision criteria while keeping internal and external succession options current and benchmarked.

Updating the leadership view as conditions change should be treated as disciplined reassessment, not as evidence that the original investment case was wrong. Figure 5 sets out the questions, interventions and decisions required at each stage of the investment lifecycle.

Figure 5: The CEO decision playbook across the investment lifecycle

The right CEO turns an investment thesis into a reality

The evidence points to a simple but consequential conclusion. Leadership isn’t merely one value creation lever among many. It’s the capability that determines whether the investment thesis can be executed successfully.

The strongest sponsors make three leadership decisions well: They appoint CEOs whose capabilities match the investment thesis, they act early when the leadership requirement changes, and they avoid repeated resets that disrupt execution, erode momentum and extend ownership.

This discipline is particularly important today. Many sponsors are still working through investments made near the peak of the 2021 and 2022 cycle under more volatile and less forgiving operating, financing and exit conditions. As returns depend increasingly on operational execution, sponsors need CEOs who can adapt the value creation plan without sacrificing pace or strategic focus.

The question is no longer whether leadership matters. It is whether sponsors can identify and select the right CEO early enough, reassess that choice decisively as circumstances change and provide the support required to deliver the investment thesis across the ownership cycle.

Authors

Emily Taylor co-leads Russell Reynolds Associates’ Private Capital practice. She is based in New York and London.
Heather Hammond co-leads Russell Reynolds Associates’ Private Capital practice. She is based in New York.
Courtney Byrne is a member of Russell Reynolds Associates’ Private Capital Commercial Strategy & Insights team. She is based in London.

The authors also wish to thank Emilio Domingo, Chief Commercial Officer, EMEA Private Equity practice of Bain & Co., for his insights and contributions to this article.

Footnotes

_{¹ Bain & Co., Global Private Equity Report 2026, https://www.bain.com/insights/topics/global-private-equity-report/
² McKinsey & Co., CEO alpha: A new approach to generating private equity outperformance, 2023, https://www.mckinsey.com/industries/private-capital/our-insights/ceo-alpha-a-new-approach-to-generating-private-equity-outperformance
³ AlixPartners, Eighth Annual Private Equity (PE) Leadership Survey, 2023, https://features.alixpartners.com/private-equity-leadership-survey-2023/
⁴ AlixPartners, 11th Annual Private Equity Leadership Survey, 2026, https://www.alixpartners.com/media/cegnapww/11th-annual-pe-leadership-survey.pdf
⁵ AlixPartners, Eighth Annual Private Equity (PE) Leadership Survey, 2023, https://features.alixpartners.com/private-equity-leadership-survey-2023/
⁶ Bain & Co., Global Private Equity Report 2026, https://www.bain.com/insights/topics/global-private-equity-report/}