Wide-ranging research into the role of private equity chief financial officers reveals a subtle, collective shift in how these finance professionals plan to prioritize their job responsibilities in the time ahead.
CFOs often wear multiple hats at private equity firms, including investor reporting and information technology duties outside of their traditional accounting and finance functions. But as demands on the position grow, more CFOs may want to consider outside specialists to handle their core tasks or invest in back- and mid-office technology to ease their work burdens. The research was conducted by professional services firm EY in conjunction with parent publisher PEI. The full results will be presented at the 2015 PEI CFOs and COOs Forum on Wednesday in New York.
The research shows CFOs plan to shift their focus away from “tactical” functions like tax and valuation to more “strategic” functions like investor relations and portfolio analytics. Currently 16 percent of CFOs name tax as one of the most important “tactical functions” of the job, but over the next two years only 10 percent of CFOs expect that to remain the same. Similar drops in valuation (from 10 percent to 7 percent) and treasury (from 9 percent to 6 percent) were expected in the next two years. Only fund accounting was a tactical function expected to increase in importance.
Compliance was the priority CFOs expect to fall fastest; with only 7 percent of respondents naming it important in two years’ time, down significantly from 27 percent today. Scott Zimmerman, EY private equity assurance leader for Americas, and one of the study’s lead authors, puts this down to CFOs becoming more comfortable with the regulatory environment “now that we’re five years out from the signing of Dodd-Frank the burden of SEC registration is a more familiar reality for private equity firms.”
Zimmerman stressed the results did not mean traditional finance functions were no longer vital to firms’ success, but indicated that CFOs have recognized the need to “free up their resources so greater focus could be given to the more strategic priorities.”
If unable to automate certain traditional tasks, outsourcing may be the most attractive route for CFOs to accomplish the goal. The research shows investors are comfortable with outsourcing less sacred functions like fund accounting, treasury and tax, but push back on functions they consider more important to keep in-house such as portfolio analytics and valuation.
“My biggest challenge is the diversity of my responsibilities. It’s hard to set priorities when they all are very important,” said one CFO in the survey.