2 minute read 9 Jul 2021
Woman walks confidently up stairs

How private equity CFOs are stepping up after last year's challenges

By Andres Saenz

EY Global Private Equity Leader

Trusted advisor to leading private equity professionals and their portfolio companies. Ardent student of consumer behavior. Marathoner. Family man.

2 minute read 9 Jul 2021
Related topics Private equity Digital

The COVID-19 lockdowns forced private equity firms to adopt virtual working models overnight. CFOs rose to the challenge.

In brief
  • Back-office operations adjusted to new workflows and continued to meet milestones.
  • Private equity firms maintained their focus on improving technology and people.
  • Overall, equity activity continued at pace, a huge achievement considering challenges of 2020.

One year ago, private equity firms were tested by one of the most profound crises in the history of global business – the lockdowns implemented to slow the spread of COVID-19. Most firms were forced to shift to virtual operating models overnight, establishing remote working environments for their staffs while continuing to raise cash and monitor portfolio companies through investor meetings on Zoom.

The EY 2021 Global Private Equity Survey showed that for the most part, firms rose to the challenge. Back-office operations readily adjusted to the new workflows and continued to meet critical milestones. In addition, overall private equity activity barely skipped a beat in 2020, which stands as an incredible achievement considering the uncertainty the world faced in 2020. 

Now, as the world slowly returns to normal with the ongoing rollout of vaccines and other measures aimed at restoring economic activity, private equity firms are faced with a new test: how do they build upon the digital progress they made during the lockdown era while reinforcing their corporate culture and fine-tuning their overall mission?

Doubling down on technology and people  

The pandemic accelerated the digital transformation private equity firms had embarked upon over the last few years. Looking ahead, most CFOs say they are planning to double down on their past bets in technology and people. In this new environment, private equity CFOs and finance teams have an opportunity to act as agents of change and influence the future of work in their organizations.

For many, this means considering whether a more remote workforce could lead to a consolidation in office space or new office layouts to accommodate social distancing. In addition, they may also expand their focus on finding talent in new metropolitan areas beyond commuting range.  

In the survey, CFOs said they would continue to reinforce technology investment and adjust flexible work schedules as they took further actions to enable a remote workforce. As they adjusted to the new operating environment, firms helped their remote workforce meet day-to-day responsibilities through frequent check-ins, flexible schedules and enabling technology.

Forward-looking firms also focused on sustaining firm culture, developing and training their people, and monitoring mental health of employees.  Looking ahead, the question we have is whether firms will continue to embrace these efforts as employees return to the office.

This could prove to be a critical part of future talent strategies. Many employees will expect continued flexibility as offices reopen their doors. Innovative firms that respond to these hurdles will have a competitive advantage in attracting and retaining the best front- and back-office talent in a post-pandemic work environment.

In the survey, private equity CFOs acknowledged that in a post-COVID-19 workforce, most employees will want to continue to work remotely, anticipating that employees will work remotely approximately 30% of the time (or roughly one or two days in a typical workweek). Few firms expect operations to return as they were pre-COVID-19, with more than 80% expecting at least a moderate change will be required for future operating models.  

Firms’ investment in technology also paid dividends on the investor front. Some 66% of private equity firms noted minimal disruption to all investor relationships as a result of the remote environment. The previous investment in building out Limited Partner (LP) portals allowed investors to enjoy continued access to information during the pandemic.

Raising capital in a virtual environment

Going forward, we anticipate that firms will continue to use a mix of virtual and traditional face-to-face methods as they meet with investors. Many firms indicated that virtual tools even had a positive impact on prospective relationships and had a minimal impact on existing ones.

This presents an opportunity for these firms to challenge traditional methods of their business to continue to compete for capital in a highly competitive environment. At the same time, private equity managers and investors are somewhat split on the long-term impact of COVID-19 on the marketing process. Many private equity firms, close to 50%, believe that the pandemic will only have a temporary change on marketing activities, while some 43% of firms note that there was likely to be a more permanent shift. On the other hand, 30% of LPs expected no change at all in terms of outreach.

As firms adjust to the post-pandemic reality, they will also need to continue adapting their operations to respond to the other new developments that surfaced in the  survey, developing a deep, diverse and inclusive talent pool and revamping their efforts to offer more ethical investment options as investors seek companies with strong environmental, social and corporate governance track records.  

The long-term impact of the COVID-19 pandemic on both private equity firms and portfolio companies is still unfolding. Firms that can successfully adapt to the new mindset of the post-pandemic world will be poised to compete not only for capital but also for new sources of talent that will help them thrive once the global economy rebounds.

Summary

The year 2020 brought major challenges to private equity executives due to the disruption caused by COVID-19. Private equity CFOs rose to the challenge, continuing to lead their teams and maintain focus on their firms’ strategic priorities.

About this article

By Andres Saenz

EY Global Private Equity Leader

Trusted advisor to leading private equity professionals and their portfolio companies. Ardent student of consumer behavior. Marathoner. Family man.

Related topics Private equity Digital