Global Private Equity Survey

The following post is based on a publication from the EY Center for Board Matters.

Environmental pressures of the past few years have forced firms to dedicate significant resources to non-investment-related tasks such as regulatory reporting and increased investor reporting. These challenges were answered timely by CFOs through increased hiring as well as implementing baseline technologies to deal with the new regulatory requirements and increased investor requests. As a result, CFOs have put the raw materials in place to allow them to deal with tomorrow’s challenges.

With even more capital flowing to private equity finds, investors are seeking increased returns and even higher levels of service. In an industry ripe for disruption there is increasing pressure on private equity firms to harness and analyze portfolio company data in a way that will benefit investors.

The question then becomes, “how do private equity firms move past yesterday’s challenges, build upon today’s foundation and create the PE firm of the future?” As you read this post, you’ll see that although there continues to be a high demand for the returns private equity firms can generate, cost-effective operations through managing talent and automation as well as the ability to harness portfolio company data are becoming critical to the success of a private equity firm.

The complete publication (available here) shows that the raw materials are now in place to develop the new-look operating model for a private equity firm. The challenge now is to make the strategic decisions required to build the optimum operating model for tomorrow’s private equity firm. 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. In many ways, success in the future will depend as much on flawless operational efficiency as great ideas and innovative thinking.

The challenge

In the current environment, investors are searching for yield and turning to private equity firms because of the returns they have generated historically. In order to continue this level of performance, these firms must focus on efficient and cost-effective operations as critical elements to their success. Many firms have adopted leading technologies to develop savvy and cost-effective methods to analyze portfolio company data. Given the large amount of dry powder in the sector, these data analytic techniques are becoming essential to identifying and closing deals.

CFOs have identified three particular strategies to tackle these constraints: firstly, strategic data, technology and business process automation (portfolio analytics, management reporting, data warehouse); secondly, talent management—engaging, training, and, crucially, retaining the most promising talent; and thirdly, outsourcing non-value-add functions to qualified service providers. 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, which have not yet provided meaningful efficiencies for private equity firms. Many CFOs still rely on old-fashioned spreadsheets as these new solutions require detailed customization and currently lack the flexibility to adjust to new business requirements. The investment to date has largely been tactical in nature, to deal with operational challenges related to investor requests, compliance and regulation, as opposed to being part of an overall strategic long-term solution. Firms have started to invest in technology to manage the huge amounts of data they need to process. This includes using new programs in portfolio analytics to take advantage of investment opportunities that may not have been considered in the past, digital platforms supporting better communication between the firm and the investor, and increased automation of routine processes. However, CFOs are skeptical of a one-size-fits-all technology solution—they have not yet seen evidence that such a thing exists.


CFOs are finding it increasingly difficult to engage and retain talent—especially millennials whose motivation extends beyond a generous salary and career development opportunities in the way that their predecessors’ did not. 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. Private equity continues to offer attractive reimbursement and progression opportunities but no longer holds the allure or the gravitas that other younger, trendier sectors do. Although private equity can still attract bright, motivated graduates, they are no longer committing to a 25-year career within the industry. Millennials clearly aspire to a broader work/life balance than previous generations and some CFOs have recognized this, attempting to bond with their younger talent through social and team-building events.


Outsourcing administrative and tactical tasks were identified by CFOs as one area that they can use to significantly improve the efficiency of their operating model, buy freeing up staff to spend more time on analyzing portfolio opportunities and investor relations. There are concerns, though, about the ability of vendors to deliver consistently high-quality service. Many of these shops suffer from high turnover and their business model can make them inherently less committed to the success of an individual client than a private equity firm’s own employees. However, CFOs recognize they need to make outsourcing work. This may be achieved by carefully selecting the right vendor, negotiating a smart agreement and then managing these external colleagues even more carefully than their own employees.

Final thoughts

As 2017 begins, there’s no doubt that the private equity business is becoming more difficult and the issues CFOs have described they’re facing are the classic strategic challenges of a maturing industry. Various factors have increased their burden over the past fear years including an uncertain economic environment, unrelenting competition for deals, heightened investor pressure to provide increased service at lower fees and the fact that they have, so far, made only small gains in operating efficiency. CFOs also have to consider whether their current operating model, and the solutions required to improve it, are ready to handle the challenges that firms face in a competitive, regulated environment.

However, by reviewing the lessons learned over the past few years, they have identified their top objectives, empowering them to tackle the complex demands facing their firms. CFOs are hoping that a combination of automating and talent management will enable them to focus less on routine financial reporting and spend more time on forecasting and analysis, which adds strategic value for all relevant constituents.

Blueprint for success

CFOs have clearly identified the top operating objectives needed over the next two years to remain successful in the competitive private equity industry. Tactical solutions have previously been put in place to deal with increases in assets under management, regulation and investor requests. Forward-looking CFOs have identified that a strategic focus on operations is required to remain competitive. Improving management reporting through mastering data, developing the firm’s people and automating routine processes are seen as the top three operating imperatives. These strategic functions are critical for CFOs to understand today in order to implement new processes, to potentially increase returns, reduce expenses, and produce information more accurately and expeditiously in the future.

CFOs have identified a number of contributors to operational complexity. Regulation, an increase in the amount of information that routinely needs to be analyzed and customized investor requests all post their own challenges for CFOs to navigate. Along with these tactical challenges, new strategic challenges are emerging, such as managing co-investment opportunities and expanding investment strategies, creating additional pressures for CFOs and their teams. Deciding how to allocate resources appropriately to deal with these drivers of complexity is important for CFOs to consider prior to implementing new strategies.

Having dealt with a significant increase in regulatory demands and expectations brought on by responding to specialized information requests from limited partners (LPs), CFOs have expressed a desire to shift their focus from the implementation and day-to-day tasks to more forward-looking and strategic tasks that add value to the growth trajectory of the organization. CFOs are looking to increase the time spent on investment portfolio analytics, which will enable the organization to make better investment decisions and identify value creation opportunities, as well as working with investor relations to help their organizations differentiate themselves in a competitive fundraising environment, where LPs have intensified operational due diligence on prospective managers. While regulatory and operational areas will remain a significant part of the business, CFOs hope that their focus on those backward-looking areas will wane.

When it comes to how the CFOs would like to see the allocation of their teams’ time, the focus is consistent with the desired shift in where CFOs would like to align their own attention. CFOs would like to see their teams spending more time on areas such as investment portfolio analytics, investor relations and other areas that add value to the strategic direction of the organization. Most respondents wanted their teams to spend less time in regulatory compliance and fund accounting which are primarily composed of routine and rudimentary tasks and offer little value to the forward direction of the organization. The fund accounting and regulatory compliance functional areas also lend themselves well to outsourcing and implementation of technology solutions.

The complete publication is available here.

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