Evolving private equity operations for growth

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The private equity industry recovered from the 2008 credit crisis and economic downturn by diversifying investments, participating in emerging markets and exploring new types of fund-raising. These strategies were successful, but they also shifted firms’ core business models.

Now as the economy improves, new growth and investment opportunities have begun to appear. To capitalize on these opportunities, the private equity industry must evolve its business and operating models, while continuing to meet investor demands and compliance standards.

Back- and middle-office functions, such as reporting, technology and treasury services, in particular require more robust and comprehensive operating models. As operations become more complex, firms must increasingly add new specialists, tools and technologies to build and support effective infrastructures.

In addition, private equity CFOs and COOs can leverage these trends to increase their visibility and clout within their organizations.

The rise of the private equity CFO

As the industry evolved, private equity firms developed their finance functions in three phases:

  • Installing core back-office functions, such as accounting and reporting
  • Adding stakeholder-specific activities, including investor reporting and portfolio reporting
  • Managing these data-intensive functions and the infrastructure supporting them

These three phases all exist, of course, so a firm’s investment professionals can work efficiently and maximize growth and investment opportunities.

The private equity CFO oversees the growth and development of the finance function. And as private equity has matured as an asset class, the CFO’s role has become more visible and influential among executive management and external stakeholders.

Private equity CFOs and COOs can leverage industry trends to increase their visibility and clout within their organizations.

The new role of COO

Increased competition for investor capital has forced private equity firms to differentiate themselves to investors and extract more value from their portfolios. As a result, new non-finance roles, such as private equity COO, have emerged.

The private equity COO oversees new business operations that span portfolio management, marketing, investor relations and compliance.

These new functional groups have increased overall industry productivity. Firms that have added treasury management and data management functions, for example, have added value across their operations.

The changes have also created a new set of challenges for private equity operations. Private equity COOs must enable different groups to execute their separate missions efficiently, and empower them to collaborate and share information effectively.

Impact on private equity operations

Executives introducing new business functions and roles must consider their effect on other parts of the business. The new private equity model affects talent recruitment and management, technology and data services solutions and outsourcing needs.

At the same time, these changes cannot interrupt or diminish the high standards of service clients have come to expect from private equity firms.

Transforming private equity operating models can never truly be called “complete.” When firms continue to refine and optimize business operations, they drive competition, boost efficiency and ultimately grow the industry.