by Anne Anquillare, PEF Services
I attended PEI’s Private Equity Forum for CFOs and COOs last week in NYC. This is a great conference for professionals who manage or are involved with the finance, accounting and operational aspects of private equity firms. It offered peer to peer networking, timely topics and thought provoking conversations. Below are some of the topics that produced the most conversation about the new norm in private equity.
Pressure from SEC
- Will SEC examiners try to interpret LPA language
- What entity should bear the cost of SEC registration and ongoing compliance
- SEC focuses on valuation methods and how that might influence FASB
- How to convince the deal side of the impact of rules around insider info
- Form PF and firm policies better be consistent or SEC will have questions
“The SEC exam taught the deal people they need to know compliance.” – Linda Costa, Chief Financial Officer and Treasurer, Commonfund
Pressure from investors
- How far to extend “free” co-investment terms
- Growing importance of operational due diligence in investor’s decisions
- CFOs inundated with requests for information during capital raise
- Long term impact of FACTA
- Transparency and alignment = more information faster
- Impact of ILPA and IPEV on valuation methods
“All LPs aren’t at the same place when talking about risk … so reporting needs will continue to be different until we, as an industry, can agree on them.” – William Happ, CFO, Adams Street
Pressure as industry matures
- Requirements for more sophisticated technology
- Increased focus on talent management and retention aspects of HR
- Need for support and understanding by senior partners who has historically been focused on deal side of industry (e.g. THL’s back office grow 4x in last 3 years)
- CFOs and their staff or administrator play an increasingly important role in the capital raising process
- Special terms are a double edged sword – be careful when considering them
“It’s tempting to go to the backroom when costs need to be cut, but in reality it is only about 8% at Bain. Firms must resist this temptation.” – Mike Goss, Managing Director, Bain Capital
Will all this pressure push US private equity industry to consolidation? What will happen to the smaller fund managers? I’m hoping that the recognition of the smaller fund size advantages in venture, mezzanine and buyout will see them through this transitional time – but we all have to be more cognizant of the changes these pressures will bring in our industry. I have my thoughts on the topics listed above but I would love to hear yours – please feel free to comment on this blog.
And, interestingly especially for me, there was considerable conversation about the use of fund administration services. An information survey of the audience showed 24% used fund administration services – this could be a reflection that many in the audience were from larger firms as my experience has been a lower percentage, but growing. Comparisons were made between using a fund administration service vs. a good in-house team – but discussion then followed on how to find, attract and retain a good team and the P&L pressure to outsource as fund sizes decrease and management fee revenues go down. And, the “back office” is no longer just finance, accounting and compliance and HR – IT plays an important and expensive role. The biggest concern over using fund was loss of control and quality.
Given the timely nature of this topic and broad interest by private equity CFOs, PEF and PEI are doing a round table discussion for PEI’s March issues of PE Manager. The topics will be Fund Administration and will include discussions on technology, the evolving role of the CFO, when it makes sense to use a third party administrator, how to work effectively with your third party administrator and why enlightened LPs are welcoming TPAs into the industry. It will be a lively discussion and I look forward to sharing the article with you.