Valuations for private equity and venture capital firms are rising to new heights as we enter what some are calling the golden age of private equity. In this environment, fund managers are increasingly relying on chief financial officers (CFOs) to provide reliable information that will help them make the right decisions to maximize value and support a careful, strategic business analysis.
This represents a natural step in the evolution of private equity firms. For years private equity CFOs focused on making sure the core business was running smoothly and made significant investments to automate processes, upgrade back and front-office talent and expand product offerings.
Their efforts to build this foundation paid off when they had to navigate the initial challenges of the COVID-19 pandemic. For the most part, firms didn’t miss a beat during the pandemic and are now capitalizing on a robust capital market, which saw the private equity industry raise more than $1.1 trillion in 2021. As they look to the future, private equity firms are now strategically building out more rigorous operating models for their management companies that often put them on par with larger financial institutions.
This push towards a more mature operating model for the management company was one of the key findings in our 2022 Global Private Equity Survey. The output of this strategic thinking has been twofold; making informed decisions to protect the established brand and to continue to look for ways to grow.
In addition, creating long-term value through a well thought-out talent management plan and incorporating environmental, social and governance (ESG) considerations are two increasingly important initiatives deployed by many private equity and venture capital firms.
With so many company valuations at all-time highs, this new rigor is also a strategic necessity as the risks of making a bad decision or missing out on an opportunity can have enormous consequences in this competitive environment.