CFO Q&A: Avoid outsourcers that keep data ‘hostage’

Scott Shebelsky is the new CFO of Lovell Minnick Partners, a private equity firm that has raised $3.2 billion in committed capital and completed investments in over 50 platform companies since being founded in 1999. He was previously acting as the firm’s chief compliance officer, a position that will now be taken by the firm’s general counsel.

The firm has 32 employees and two new hires joining next month. Its finance function consists of Shebelsky, the firm’s controller, a part-time resource who helps on the management company side, as well as a shared resource between IR and finance who spends some of his time assisting Shebelsky. We spoke with Shebelsky to discuss how he manages the outsourcing and technology aspects of his firm.

What do you have direct responsibility for?

I oversee the finance and accounting functions for all of our existing funds and our management company. On the fund side, that is overseeing the production of financial statements, capital flow management, credit facility usage, taxes. A good portion of this work is accomplished with the help of our fund administrator.

Because we are believers in the outsourced model, we carry a lean finance team. On the fund side, obviously financial reporting is a big part of my job as CFO. On the management company side, I would say budgeting and cash flow management is a bigger focus.

You mentioned that you outsource your fund admin. Can you mention what other outsourcing services you use?

Fund admin is probably the biggest. But we also outsource legal and tax prep for the funds. On the management company side, it’s mainly IT and a small amount of legal and HR work.

We have made several service provider changes over the last few years. The largest was a change in fund administrations, which was midway of ’18, so we’ve been with them for about a year now.

How did that transition work? What are the challenges that come with transitioning from one fund admin to another?

As you can expect, you have one provider that’s excited because they’re getting a brand-new client that is right in their sweet spot, but on the other side you have a provider who’s losing a very important client. So the dynamic can be challenging at times.

So there’s that sentiment that you must overcome. But then there’s the transfer of data, which depending on how the data is organized, what GL and other technology systems are used, and understanding what team can extract what and download this etc, it is never easy. Candidly it’s this pain that can make people reluctant to change. But at the end of the day you need to make the best decision for your clients and employees – no matter the challenge.

When you transfer that data, are you using a cloud service of some kind?

Once you make the transition, it opens up what you’ve done in the past for inspection and review by your new fund admin. How’d you treat this? How’d you treat that? Oftentimes, not only are you dealing with the transfer of information and knowledge issue, but there may be different interpretations or items discovered that may need additional clarity or support. It’s this dynamic that could potentially make someone reluctant to open up the box. As a CFO you have a duty to open that box and make sure things are right.

What’s one piece of technology that you feel like you couldn’t do your job without?

Unfortunately, my response today is Excel. If that’s my answer in 12-18 months I am not doing my job. We have a few initiatives right now that should reduce our reliance on Excel and make our performance and portfolio monitoring more efficient and leverageable.

Are you currently looking at other types of technology or services right now?

We are examining a lot. Some we have already adopted and others underway. We have a new CRM, LP portal and compliance monitoring system. We’re also in the process of implementing a performance and portfolio monitoring tool that not only will become the resting place of all of our data, but it also has great analytic and data visualization capabilities.

We’re trying to become as dynamic as possible. We’re beyond the days of being early movers in this. I think this is truly becoming table stakes for GPs. If you’re not evolving right now, you are going to be left behind.

It just seems that technology data platforms, data visualization, waterfall automation, things of that nature have become so much more front-of-mind for CFOs. I think the industry is going through a major shift right now, and we’re obviously trying to keep up with that.

Were you ever a part of a big tech project that turned into a nightmare for any reason?

No nightmares per se, but one important lesson learned during our CRM implementation is that the project team concept never really goes away. Across a 30-person firm we have four to five superusers who actively manage the system, making it sure it conforms with how we conduct business. If we change how we behave day-to-day, then we need to make sure our CRM fits the change. Said differently, a CRM is an evolutional project – not something you just put in place and stop thinking about. Beyond the active management requirement, the other challenge is getting the rest of the organization to adopt and use the system as intended.

Sometimes this results in trying to solve the same problem in different ways to accommodate everyone. That said, getting firm-wide buy-in is paramount to not only having a successful implementation, but also a healthy system that can be leveraged broadly across the organization. Setting the tone at the top is critical here. Anecdotally we’ve come across firms who are in their second and third implementations of CRMs due to narrow buy in.

What’s the number one thing that outsourcers do that annoys you?

Keeping our data hostage. This was one of the biggest reasons we left our prior fund admin. There are times when you need to make a quick decision and some of the inputs needed are held by your provider. Having to dissect work papers and pull information from disparate sources or wait for your admin to get back to you does not lend itself to brevity. From a client service perspective, it’s important to create an architecture that empowers the client – not slow them down.