From McKinsey to McDonald’s: Underwriting for DPI in a Fractured Capital Landscape

For much of the past decade, private capital across Asia operated under an implicit consensus: top-line growth came first, capital was cheap, and liquidity would take care of itself through the next up-round or a public listing.

That playbook no longer works.

On 23 September, I joined the opening breakfast session of the DealStreetAsia Asia PE-VC Summit 2026 in Singapore — “When Global Capital Fractures: Opportunity and Friction in APAC Private Markets”, hosted by Vistra Fund Solutions — alongside fellow panellists from Vistra, Antares Ventures and Triple P Capital, moderated by DealStreetAsia’s Andi Haswidi. One reality framed much of our discussion: we are navigating a regime shift. Macro divergence, a cost of capital well above that of the 2010s, and geopolitical realignment have structurally raised the friction in regional private investing.

The numbers bear this out. Asia-Pacific private equity fundraising fell to about US$58 billion in 2025 — a 12-year low and roughly 5% of global fundraising. The number of regional portfolio companies held for more than five years rose 18% in a single year. And in Southeast Asia, exit value fell 32% in 2025 even as exits recovered across the wider region.

In this environment, general partners (GPs) cannot rely on multiple expansion or paper valuations. Delivering durable returns requires a return to fundamentals: underwriting for realised distributions (DPI) at entry, translating strategy into operating rigour, and anchoring growth in defensible domestic positions.

1. The DPI imperative: structuring the exit on day one

Limited partners (LPs) are sending a clear signal: paper marks (TVPI) are no substitute for realised returns (DPI). In McKinsey’s January 2026 survey of 300 LPs, 54% rated DPI “critical” or “most critical” — tying it with MOIC as the second-most-important metric after IRR — and 70% cited delayed exits and lack of liquidity as a concern. They have reason to: distributions as a share of private equity AUM were about 6% in the twelve months to June 2025, against a 16% average in 2015–2019.

Exit risk in Southeast Asia is acute. Historically, many managers underwrote initial cheques on expansive TAM projections and deferred exit mechanics to year five or six. Today, that approach risks stranded assets — particularly when the average private equity holding period at exit has stretched to 6.6 years globally and trade sales remain Southeast Asia’s dominant exit route.

At August Global Partners, our conviction is that liquidity cannot be an afterthought; it must be designed at entry. In practice, that means structuring each deal with explicit liquidity mechanisms:

• Pre-agreed exit pathways. Negotiating redemption, put, drag- and tag-along rights, or structured secondary windows tied to defined performance or time hurdles — recognising that such rights are only as valuable as their enforceability and the company’s capacity to honour them.
• Secondary liquidity by design. Using GP-led secondaries and continuation vehicles as planned liquidity tools, not as defensive remedies for stalled portfolios. The market is now substantial: GP-led volume reached about US$115 billion in 2025, more than triple its 2020 level. But LPs are discerning — roughly 30% view continuation-vehicle assets as “distressed” or “challenged” — so credible use requires independent pricing and a genuine choice for existing LPs to sell or roll.
• Valuation realism. Resisting inflated early-round valuations that later price portfolio companies out of viable strategic trade sales or sensible regional M&A.

If an investment thesis cannot articulate who plausibly buys the company within the fund’s holding period — and why that buyer will pay for demonstrated cash flow rather than theoretical promise — it does not meet our bar.

2. Operational rigour: from McKinsey to McDonald’s

In growth investing, an elegant strategic thesis is table stakes. Translating that thesis into repeatable, daily unit economics is where investment outcomes are decided.

We describe this pivot as moving “from McKinsey to McDonald’s” — from the strategy deck to the operating manual. Visionary market-capture slides mean little if a business cannot deliver unit-level repeatability with precision and consistency. Capital-intensive expansion is defensible only if each dollar deployed deepens a durable advantage. When capital is expensive, tolerance for unproductive burn falls sharply.

The industry data points the same way. McKinsey estimates that leverage and multiple expansion accounted for 59% of private equity returns on deals completed between 2010 and 2022; without those tailwinds, it concludes that operational value creation is “now likely to be the primary source of returns.” Bain’s Southeast Asia team reaches a similar view: with exit timelines extending, operational value creation “is now the primary driver of returns”.

To enforce this rigour, the deployment model must evolve:

• Milestone-based tranching. Where appropriate, deploying capital against pre-agreed operating KPIs, so that management reaches margin, product or revenue milestones before further growth equity is released — structured to align with management, not to constrain it.
• Prioritising cash-flow visibility. A clear path to self-funding should be a core objective of deployment. A company that reaches cash-flow breakeven controls its own destiny and is far less exposed to volatile external funding cycles.
• Execution over narrative. Long-term enterprise value is built on procurement discipline, margin hygiene and operational reliability — not continual narrative pivots.

3. Domestic anchors as resilient moats

Aggressive cross-border expansion was once the default milestone for venture-backed regional businesses. Amid supply-chain realignment, currency volatility and geopolitical friction, premature cross-border expansion can introduce more vulnerability than value.

When underwriting growth equity — particularly in healthcare — a strong domestic market position is one of the most reliable defensive moats a business can have. A company anchored in deep domestic demand:

• Reduces exposure to external shocks. It is less exposed to tariffs, cross-border regulatory shifts and foreign-exchange volatility — although imported equipment, consumables and medicines mean no healthcare business is fully insulated.
• Earns pricing power. In essential sectors such as healthcare, patients, payers and providers often place a premium on reliability, clinical outcomes and trust over the lowest price — even where public tenders and reimbursement ceilings constrain headline pricing.
• Presents a clean acquisition target. Global strategics seeking entry into high-growth Asian markets often prefer established domestic leaders with defensible local share over fragmented regional operations with diluted focus.

This is not an argument against cross-border growth. It is an argument about sequence: build domestic leadership first, then expand across borders by design — with the structuring, regulatory and tax groundwork done in advance — rather than by default.

The road ahead

Private capital across Asia-Pacific is not contracting out of pessimism; it is maturing through discipline. There are early signs that discipline is being rewarded: Bain reports that net distributions to investors in the region turned positive in 2025 for the first time since 2021.

The managers who navigate this decade successfully will not be those holding the most expansive portfolios on paper. They will be those who run focused, operationally disciplined portfolios, align incentives directly with LP cash distributions, and back businesses built to thrive on domestic fundamentals and profitability.

In a fractured capital landscape, durable returns are grounded in operational truth.