Constantine Rakkou is the chief financial officer and chief compliance officer for HKW, a private equity firm investing in growth-oriented companies with talented management teams in the US and Canada. The firm targets small to mid-size companies in the business services and health and wellness sectors. Since 1982, HKW has sponsored 62 platform transactions in lower middle-market companies throughout North America, as well as 66 add-on acquisitions.
Rakkou, who has been with the firm since 2005 when he was hired as a controller, moved up the ranks into the CFO role about eight years ago, and since 2017 has balanced that position with that of CCO (though he had a transition period, serving as assistant CCO to the now retired previous CCO).
Rakkou oversees a small team, with a lot of responsibility. Only two people, both serving in finance and compliance functions, report to him. Rakkou tells us about some of the challenges of balancing both roles, as well as how the firm implements its anti-money laundering procedures –not required of private funds under US law, but something that some industry veterans think are likely to be required in the not-too-distant future.
Were there any initial challenges when you first started as CCO while balancing the CFO role?
I had the opportunity to be the assistant CCO for a little bit, but certainly time constraints were the initial challenges. But once you establish a rhythm and you find a balance, it tends to be easier to manage the two roles. I have my team and I discuss matters frequently. So we divide our time and responsibilities and rely on each other as well.
How do you know when to be a CFO and when to be a CCO?
It really depends on what is being worked on, but compliance hangs over everything. Any decision that is made, you have to always take into consideration the compliance impact, if any.
What was it like adapting into the CCO role?
When I became the CCO, I had to not only re-introduce myself to the compliance manual and the entire compliance program, but also ensure that I was the one who was initiating the trainings, initiating the conversations, and rather than being instructed to follow up on something, I had to be the one to initiate. That was the main difference for me between being a CCO and assistant CCO. Before, I deferred to the instructions from the CCO but now I’m the one who’s got to be present in all pertinent discussions.
Can you give me an example of when your CFO role and your CCO role intertwined?
There are a few things that come to mind. But one of them would be valuations of our companies. We value them for financial reporting purposes, but we also have a valuation policy. So we have to ensure that we’re doing it per our policy and that we’re not deviating from the policy. One other example where I see the roles intertwine is IT and the cyber environment. As the CFO I’m the main contact for IT, and I’m concerned from a CFO perspective when I’m wearing my CFO hat about the cost of the service, and how the service is performing for us. From a CCO perspective, I’m concerned about the security and making sure that our environment is safe and that the safeguards are in place to mitigate attacks in accordance with our policies.
I understand you implement an AML policy. Is that standard for private funds, in your experience, despite the fact that the US doesn’t require AML procedures for them?
The USA PATRIOT Act does not currently require anti-money laundering (AML) policies or procedures for registered investment advisors. Nonetheless, many advisors implement AML policies and procedures because of the potential consequences of becoming associated with money laundering. Additionally, investment advisors that are affiliated with other financial institutions may be subject to AML statutes because of those affiliations. I also reached out to our compliance consultant, and they confirmed that they are not aware of a single client that does not have AML policies and procedures. It’s a lighter touch – Office of Foreign Assets Control [part of the Treasury Department] checks – but all the clients that our consultant has have implemented some level of AML checks. The consequences could be devastating, so firms will always implement some level of policy.
What is your advice to a CFO looking to take on a compliance role as well?
I am of the opinion that the CCO role encompasses everything. You have to ensure that you have the proper understanding of your manual and of your policies. Make sure you divvy up your time so that one role doesn’t take precedence over the other, organize your day, know your timelines from a financial reporting and from a compliance reporting perspective and be prepared for any unexpected curve balls.
Ultimately my advice is be focused and take it seriously, but you should get some enjoyment out of it too.