It was a whirlwind two days at Private Equity International’s CFOs & COOs Forum 2019 in New York where more than 600 delegates gathered to hash out the topics that matter most to the private equity back office. Here are some of the major themes that came to the fore.
CFOs on the front line
Private equity is a people business, as the adage goes. No one seems more acutely aware of this than the CFO or COO. Sixty percent of CFOs surveyed by EY considered talent management to be a top strategic priority.
What seems on the surface like a “softer” element of running an investment manager (“we had a ping pong table for a couple of months”, said one exasperated CFO) is anything but. More than three-quarters (78 percent) of the CFOs said investors are requesting information about their firm’s talent management programme.
Some of the forum’s top talking points fell under this umbrella; how do I create a culture that allows me to compete for talent with tech firms? And how do we foster more gender and cultural diversity?
Tech, tech and more tech
Technology in all its forms was also a major area of discussion. We overhead CFOs swapping notes on the best software programmes and data tools, and asking questions about the best ways to harness their own data to grow and improve their firms.
For many CFOs at smaller firms, technology is presented as a cost, with potential savings proving thus far elusive: “It is not just the upfront cost – both of money and time, because you have to run the new and old systems in parallel for a while – people are mostly seeing [an] increase in technology costs and we are not yet seeing the benefit,” said one CFO.
Cybersecurity is coming through as one of the biggest headaches for a CFO; one estimated this area to be the third-biggest cost their firm faces after rent and salaries.
There are technology challenges on the regulatory front too. We spoke to a couple of CFOs about the tricky area of instant messaging. One mentioned the need to make employees aware that text messages could be subject to review in the same way as emails, and has asked their staff not to send any business-related information in instant messages.
Valuations matter more
Get 600 private equity CFOs together and the conversation will at some point turn to valuations. There is no standard way of doing it – firms still blend a number of different methodologies to get to what they think is a sensible mark, sometimes using different methods from one company to another in the same portfolio (if the different nature of the businesses demands it).
One of the key learnings from this year’s forum is that third-party advisors are infrequently used to do the “heavy lifting”. An audience poll in a breakout session on this topic showed that 82 percent of the CFOs in the room do not use independent specialists to carry out the valuations.
As one CFO put it, no one knows their portfolio better than them. Another learning is that the rise of the secondaries market and the improved liquidity it brings has made interim valuations much more important; LPs want to know what they could potentially get for their fund stakes.