Private equity firms have long promoted the virtue of active ownership—the hands-on style that distinguishes them from traditional portfolio investors. But what does active ownership mean, and does it really lead to superior performance?

Recent McKinsey research reveals a strong correlation between five steps that private equity firms can take to direct a company in which they invest and outperformance by that company—in other words, performance better than that of its industry peers. Many private equity firms have embraced these steps and execute them well, yet surprisingly few do so in the consistent and systematic way that would increase the returns from an active-ownership approach.

Eleven leading private equity firms, all boasting better-than-average track records, made up our sample. Each of them submitted five or six deals from which they had exited. The deals represented a range of returns from average to very good. To calculate the value generated by active ownership, we built a model to isolate the source of each deal's value: overall stock market appreciation, sector appreciation, the effect of extra financial leverage on those market or sector gains, arbitrage (a below-market purchase price), or company outperformance.