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How private equity firms focus on talent and technology to sustain growth

Some 76% of CFOs of the largest private equity firms say that both finding and retaining talent are critical to growth.


In brief
  • CFOs have embraced a number of new roles over the past 10 years, including talent management and overseeing digital transformation.
  • CFOs who can combine an understanding of data with a strategic mindset are the ones best positioned to help drive growth.
  • Some 84% of the largest firms say they plan to make either extensive or moderate IT investments to support decision-making over the next three years.

Over the 10 years that the EY organization has conducted the EY Global Private Equity Survey, chief financial officers (CFOs) of private equity firms have maintained a steady focus on hiring new talent and retaining people, which they see as key to remaining competitive and driving growth.

The results of the 2023 EY Global Private Equity Survey continued to reflect that theme. In the survey, 76% of the largest firms said that both finding and retaining talent are critical, while 60% of smaller firms emphasized the importance of hiring the right talent.

 

But focusing on talent management has been just one of the evolving roles private equity CFOs have embraced over those 10 years.  CFOs also identified several other factors as key to asset growth, such as seeking additional sources of capital and expanding product offerings to deliver a more diversified product mix.

 

Many private equity CFOs, especially at larger firms, also play a major role in leading their firm’s technology transformation. In a digital environment, those CFOs who can combine data with a strategic mindset are the ones best positioned to help drive growth. This transformation has led to a major shift in responsibility, especially at the largest firms. CFOs now are expected to spend less time overseeing tactical work, such as audits and valuations, and instead focus on delivering value to other managing directors and creating and evaluating strategic transaction options.

 

Given the changing demands of the industry, the ideal private equity CFO has had to become both tech savvy and data focused. These skills are increasingly critical in a volatile macro-economy where the spend on these tech functions in a dynamic environment delivers a vital benefit by continuing to allow firms to be more efficient and delivering usable and actionable data for investors and managers alike.

 

Even with the investments of the past three to five years, however, only 27% of the largest firms considered their overall platform to be highly automated. We have noted in previous surveys that CFOs have helped invest in the private equity fund process, and they have recently begun investing into management company and general partner functions. With ever-changing technology solutions, investments in automation and operational efficiency are continuing with an eye on supporting growth and achieving fiscal goals, as well as generating reporting that will help stakeholders make better decisions.

 

Given their depth of resources, it’s no surprise that the largest private equity firms are leading the technology transformation within the industry. On the investment side, the ability to rapidly and thoughtfully analyze data to make better investment decisions has emerged as a trend at most of the largest fund managers.

Investing in decision-making
84%
of the largest firms say they plan to make either extensive or moderate IT investments to support the decision-making process over the next three years.

Firms are adding talent in this area to synthesize and provide attribution detail to support the investment decision-making process. Midsized and smaller firms are spending on technology to support the investment decision-making process, although not quite at the level of the largest firms (76% and 71%, respectively).

When it comes to back-office functions, however, the largest firms continue to do much of the work with in-house support, and in pockets by outsourced service providers. In contrast, smaller firms rely almost exclusively on outsourcing back-office functions. For smaller firms, utilizing outsourcing arrangements not only helps during challenging hiring periods, but also frees up internal headcount to support more strategic initiatives.

In this current period of economic volatility, we expect private equity firms will continue sharpening their focus on both talent management and digital transformation as they try to remain competitive.

Summary 

Private equity CFOs have taken on significantly expanded roles as their industry has grown rapidly over the past 10 years. Now that the industry has entered a period of economic volatility, they will need to continue to maintain their competitive edge by focusing on upgrading talent and pushing the envelope on their digital transformation.

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