CFOs as champions of strategy and innovation in private equity

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Nicholas d'Adhemar, Apperio


By Nicholas d’Adhemar (pictured), founder and CEO of Apperio – Private equity CFOs are spending more time on strategic tasks outside of the traditional financial role and to the benefit of their firms.

Chief financial officers (CFOs) could well be the secret weapon to modernising processes and technology within private equity (PE) firms. The 2020 Global Private Equity Survey by EY shows CFOs are being “charged with helping their organisations make informed decisions as they move into this unprecedented age of asset growth and product expansion.”

It’s a responsibility that CFOs are embracing too. The findings show they would prefer to spend less time on traditional operations functions like fund accounting and regulatory compliance – in favour of spending more time on strategic duties such as portfolio analytics and technology.

There’s more than just a desire too. CFOs are spending more time on strategic tasks outside of the traditional financial purview. Those tasks range from helping to prepare fundraising materials (68 per cent) to cybersecurity oversight (48 per cent) to scenario modelling and economic forecasting (43 per cent).

Navigators of change

My team recently poured over several studies of the PE community to draft a new report titled Seven Strategic Private Equity Business Trends to Watch in 2021. Many of the trends in the report are tightly linked to the CFO and demonstrate how the role has evolved. Below are several ways CFOs are emerging as champions of strategy and innovation in private equity.

1. Facilitating asset growth

CFOs have a critical role in helping PE firms fuel asset growth. The EY survey details how leading CFOs are helping their organisations roll out new product offerings. For example, CFOs are “typically” involved in assessing “potential compliance issues (73 per cent), analysing potential tax issues (73 per cent) as well as hiring talent (63 per cent) to oversee new products.”

2. Meeting LP demands for transparency

A survey by Private Funds CFO found limited partners (LPs) are increasingly looking to the CFO in their pursuit of transparency. Nearly 90 per cent of respondents say LPs ask to meet with the CFO at least some of the time. One CFO said he had more than 60 “meetings or calls with investors” to address LP concerns, “including operations, internal controls, economics, work environment and culture of the organisation” as the PE firm raised its most recent fund.

3. Enabling technologies, data and analytics

The vast majority (84 per cent) of PE firms have identified digitisation as a priority over the next year, according to a survey by PwC and Mergermarket. Digitised data is the fuel modern analytical tech tools need to provide insights for sourcing and expediting deals.

The EY survey says CFOs are “leading the effort” to “deploy innovative new technologies” that will effectively analyse this data. Individual CFOs “overwhelmingly expect their finance team to spend more time on technology and investment portfolio analytics over the next two years.”

4. Attracting tech-savvy talent

Talent management trails only asset growth on the list of PE strategic priorities, according to the EY survey. However, talent and asset growth are interdependent because technology skills are crucial to achieving the scale needed to manage more assets. While hiring tech-savvy talent is top of mind for many leaders, CFOs have an outsized role where human resources fall under their operational responsibility.

5. Controlling costs

Controlling costs is a theme threaded throughout the trends in the report – and outside counsel spend is one area where costs could be better managed. For example, Apperio commissioned a study which found that UK- and US-based PE firms spend on average:

  • USD8.63 million in the UK and USD10.46m in the US on outside counsel
  • USD253,000 (UK) to USD353,000 (US) in legal fees for the typical M&A transaction; and
  • Total legal costs account for 3.9 per cent (UK) to 4.7 per cent (US) of a fund raised on average.

Amazingly, while roughly 80 per cent of legal stakeholders in PE firms feel increased pressure to reduce external legal costs, about 40 per cent admit their organisation is not currently making any efforts to manage legal spend.

Uncertainty as accelerant

Rex Salisbury, a fintech deal partner for a16z observed, “Businesses of all kinds are experiencing two years’ worth of digitisation compressed into months.”  To that end, none of the trends cited here are entirely new – but have they become heightened over the last 12 months. Perhaps Mr Salisbury’s assessment about the acceleration of digitiation may well extend to them all.

Nicholas d'Adhemar is the founder and CEO of Apperio, a legal spend analytics and matter tracking platform for in-house counsel and law firms. Before starting Apperio, Nicholas spent six years working as a lawyer and another three years as an investment manager with a PE firm. Download the full report here: Seven Strategic Private Equity Business Trends to Watch in 2021.

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