Have yesterday’s challenges provided a foundation for tomorrow’s success?
2017 Global Private Equity Survey, in collaboration with Private Equity International
Background and methodology
Private Equity International conducted the research, collecting information through the following:
- Telephone interviews with 31 private equity funds from August through December 2016
- An online survey to which 103 private equity funds responded from August through December 2016.
Private equity firms have had to dedicate significant resources to non-investment-related tasks such as regulatory reporting and increased investor reporting. As CFOs answered these challenges, they put the raw materials in place to allow them to deal with tomorrow’s challenges.
Our survey reveals that CFOs believe that the way ahead demands they make their teams more professional by retaining and developing key talent, add and leverage technology to create better investment opportunities, and automate many of the time-consuming manual processes.
The question becomes, “how do private equity firms move past yesterday’s challenges, build upon today’s foundation and create the PE firm of the future”?
In many ways, success in the future will depend as much on flawless operational efficiency as great ideas and innovative thinking. The challenge to CFOs is using their current resources to build tomorrow’s private equity firm operating model.
Data and digital
Managers say they are constantly investing in new technology solutions, but many CFOs still rely on old-fashioned spreadsheets. Investments to date has been largely tactical in nature, to deal with operational challenges related to investor requests, compliance and regulation.
Firms have started to invest in new programs in portfolio analytics, digital platforms supporting better communication with investors, and increased automation of routine processes. However, CFOs are skeptical of a one-size-fits-all solution.
CFOs are finding it increasingly difficult to engage and retain talent. Although private equity can still attract bright, motivated graduates, they are no longer committing to a 25-year career within the industry.
Ninety percent of CFOs expect new hires to stay for less than five years which makes developing talent difficult and the logic behind it questionable.
Outsourcing administrative and tactical tasks were identified by CFOs to significantly improve the efficiency of their operating model. But there are concerns about the ability of vendors to deliver consistently high quality service.
CFOs need to make outsourcing work, by carefully selecting the vendor, negotiating a smart agreement and managing these external colleagues even more carefully.
The private equity business is becoming more difficult, and firms have made only small gains in operating efficiency. By reviewing the lessons learned over the past few years, CFOs have identified their top objectives, empowering them to tackle the complex demands facing their firms.
At EY, we believe that both managers and investors know what tools are required for private equity funds to navigate the challenges which lie ahead in this uncertain global economic environment, and we look forward to continuing to provide insight and analysis across the broader asset management industry, including the private equity market.