Private equity chief financial officers (CFOs), facing pressures including increased investor scrutiny and intensifying market competition, are seeking operational success via different pathways, according to the EY 2018 Global Private Equity Survey.
The fifth annual survey of 110 private equity (PE) CFOs finds many firms, especially larger firms with more than US$2.5b asset under management (AUM), consider technology transformation and talent development as key priorities, while smaller firms (under US$2.5b in AUM) are also more likely to view outsourcing as an alternative.
Mike Lo Parrino, Partner, Ernst & Young LLP, said: “While ideal operational maturity may be defined differently for private equity firms by size, it is clear that this needs to be their focus in order to compete for talent and investment capital. CFOs are increasingly confident that they will be taking major strides toward operational efficiency in 2018.”
Our key findings cover five key areas.
1. The importance of operational efficiency
The asset management industry as a whole continues to face investor pressures around fees, and the private equity industry has not been immune.
- Seventy-three percent of PE firms said they have experienced significant pressure from investors to reduce management fees, and as a result, 31% of CFOs report they have experienced some form of margin erosion.
To protect their margins, private equity firms have had to take action.
- Twenty percent of CFOs neutralized margin erosion by strategically cutting expenses and growing top-line revenue. Growth remains a top priority for PE firms, with record fundraising in 2017. Therefore, it’s no surprise that 55% of CFOs said they expect to raise a new fund in 2018, and 60% of CFOs expect the fund to be larger than the last fund raised.