From the archives: Chae argues fees are ‘still justified’

Blackstone CFO Michael Chae told the 2019 forum that private equity’s value creation and performance justified fee levels.

As chief financial officer of the world’s largest alternatives asset manager, Michael Chae knows a thing or two about managing the operations of a complex and growing organization. He shared his insights with delegates at the CFOs & COOs Forum 2019 in New York.

What’s your advice for CFOs whose firms are exploring new strategies?

A big part of what a CFO can do is help quantify how much this [new strategy will] move the needle. What is the real financial contribution and impact of this new idea to the firm long term? Can it really scale? That is important not only in moving the needle for the firm financially, but also because scale and building something bigger is aligned with being able to attract great people and having a large enough pie that can create rewards for people. It also justifies the right focus and attention from a management time standpoint.

If you were the CFO of a lower-mid-market firm with a limited budget, what would you prioritize?

People. Attracting talent, and retaining them, and finding them in what I call a hot labor market – which often lags the actual market – is a real challenge.

A firm like that obviously won’t have unlimited resources to create an infrastructure, [so] looking at third-party alternatives, outsourcing, is natural.

What’s your view on how and when the private equity industry may be disrupted?

There’s some talk about how artificial intelligence or technology writ large could disrupt the model, whether it’s around identifying investment opportunities or, on the other hand, raising capital [for investments]. I think it will be evolutionary, not revolutionary, around tools like that. I think for the most part it might change or evolve how existing players do their business.

Does private equity still offer investors value for money?

Of course, the answer is yes. [The performance data over the long term] continues to show that, net of all fees, it is delivering value to investors relative to public market alternatives. I think LPs think the fees are justified relative to the active management and value creation and performance that has been delivered over a long period of time.