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Private Equity CFO Role Continues To Evolve

Professional services firm EY published the results of its seventh annual Private Equity CFO survey today, providing more insight into the ever-changing nature of the CFO function at a private equity firm.

EY’s survey results show the extent to which the role that was responsible originally for fund accounting and tax oversight has morphed into a strategic leadership one, with 70% of respondents saying that they are looking to allocate more of their time to portfolio analytics and 69% of respondents looking to take a more strategic view of technology and how it can benefit their management company and portfolio companies. The number of firms using next-generation data – for example social media sentiment as opposed to market data – to support the investment process has increased by 33% in the past twelve months. This is particularly notable amongst the larger PE firms; 69% of firms managing more than $15bn already use or expect to invest in this technology. Similarly, 73% of firms managing more than $15bn use or expect to use artificial intelligence technology.

“More and more larger firms are expecting to use next generation data tools, artificial intelligence and analytics” said Mike Lo Parrino, Americas Financial Services Organization Private Equity Leader at EY. “As the bigger ones get larger and diversify their strategies, they are thinking about how to manage that growth to scale the business properly. We’re still in the earlier stages but these 3 areas are where PE firms can innovate, be efficient and scale.”

Private equity CFOs have assumed an increasing responsibility for their firm’s talent acquisition and management function over the years. Whilst 73% of survey respondents say that, perhaps unsurprisingly, their top priority is employee productivity/engagement, 47% say that increasing gender representation is the next most important priority.

According to the survey results, 58% of private equity firms with between $2.5bn and $15bn in assets under management have set gender diversity targets, and 48% of this group have set ethnic diversity targets. 58% of firms managing more than $15bn have also set gender diversity targets, but 62% of this group have set ethnic groups targets.

Notably, amongst private equity firms managing less than $2.5bn, the majority (63%) have not set gender diversity targets and 74% have not set ethnic diversity targets. Women continue to be under-represented in front-office roles; proportion of women in front-office roles is less than 30%. This challenge is even more glaring among the mid-sized and largest firms, where fewer than 10% of firms report that they have more than 30% of their investment professional roles filled by women. Lo Parrino says that, despite these numbers at the smaller end of the industry, change is happening.

“Private equity investors want to see their managers focus on diversity and the industry is making concerted efforts to improve in this area. It’s well understood that a more diverse talent pool leads to better decisions and therefore better results,” he said.

Private equity CFOs are also seeing increasing involvement in the fundraising/investor relations part of a PE firm – 68% say that their current responsibilities includes preparation of fundraising materials and 58% say that they attend fundraising meetings – and cybersecurity is another hot topic which they see ownership of, with 48% saying that this falls within their purview.

“The private equity industry is going through the same things as any industry with regards to cyber security” said Lo Parrino. “Whether its protecting data, whether it’s fraud or reputational risk - the firms I speak to are very focused on this, with 3rd party service providers involved, and a focus on staff training as well.”

The survey results also shows that private equity CFOs have further ambitions. 30% would like to get more involved in onboarding portfolio companies and 28% would like to get their hands dirty with their portfolio companies to improve their finance functions.

“We continue to see the CFO role at a private equity firm evolve from operations to a broader, more strategic role, focusing on areas like talent and technology. This evolution shows no signs of stopping as the CFO function continues to innovate and show where it can add value not only to the management company but the portfolio companies as well,” said Lo Parrino.

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