How to hire a CFO

Back-office staff are in demand, and those with skills beyond number-crunching are a particularly hot property. Vacancies for private fund chief financial officers and chief operating officers are at their highest level since 2007, according to executive search firm Heidrick & Struggles, while UK-based Private Equity Recruitment has had a busy 12 months, placing 14 CFOs or chief financial directors at London-based firms.

This demand is expected to be sustained over the next year. More than one-third of respondents to pfm and EisnerAmper’s CFO survey said they plan to further boost their back-office headcount over the coming year, with tax, compliance and accounting skills particularly sought after.

With back-office staff on the wish-list of so many private fund firms, how can a business differentiate itself from the competition and attract the right candidate for the position? Salary is of course a crucial factor. There are three components to compensation: base salary, bonus and carry. The first two are very much dependent on a firm’s size and its AUM, says Stuart Patterson, head of finance at Private Equity Recruitment.

“If we combine the two figures, the CFOs in the larger funds may well receive more than twice as much in total annual cash than those in smaller funds. Fund size is the biggest single factor affecting compensation,” Patterson says.

“Carry [is] an indicator on how they are viewed, [as] an employee or an integral member of the team that will benefit from the long-term success of the business”
Stuart Patterson

Time in the role also plays into an employee’s salary, and as CFOs tend to stay for many years, there is real opportunity to develop their career and their compensation, he adds.

Carry is becoming ever more important. Back-office staff know they are taking home less than their investment team peers, but there is a degree of competition among firms to offer the best package to new staff. This is increasingly including a bigger share in investment profit, Patterson says.

“Carry [is] an indicator on how they are viewed, [as] an employee or an integral member of the team that will benefit from the long-term success of the business. For a high-performing fund this could be millions,” he says.

Climbing the ladder

While compensation remains a leading factor in a candidate’s decision to accept a job, a minority are willing to move to one that pays the same as their current role if the new employer offers the opportunity to move up the organization’s ladder, Heidrick & Struggles’ Todd Monti tells pfm.

Increasingly, back-office staff are looking for a seat at the table, and if they’re not recruited as a partner, they want to know that there is the chance they can become one further down the line.

“CFOs and COOs want a voice; they want to have a voice regarding a firm’s strategy and growth, and when joining a firm with a track record, that they can bring best practices to the role”
Todd Monti

“CFOs and COOs want a voice; they want to have a voice regarding a firm’s strategy and growth, and when joining a firm with a track record, that they can bring best practices to the role,” he says.

This was echoed by Patterson, who adds: “They want to know whether they are a head of back office or a board member/partner in the fund. The latter will attract the best talent.”

It’s no surprise that on the hiring side, candidate criteria have evolved over the past few years as the nature of private fund management has changed. Even in the areas that may have traditionally fallen into a finance professional’s remit, there has been a notable increase in demand for staff with specific experience, such as tax structuring. Around 15 percent of respondents to the pfm/EisnerAmper survey said they expect to boost their in-house tax expertise over the coming 12 months. But beyond that, firms are looking for staff with other skills.

“Some [firms] put the emphasis on the individual having a strong accounting background, while others are looking for people that have the capacity to take on a broader COO/CFO hybrid role,” Monti says.

Building on this point, Patterson says a CFO is now the CFO, COO, CCO and in some cases the head of IT and human resources.

“It is no longer enough just to be able to crunch the numbers. Process and system automation is becoming more and more important, they also need to learn the legal, compliance, deal/fund/tax structuring etc. The breadth and demands of the role naturally dictate the hiring needs.”

CFOs of small funds, under £1 billion ($1.34 billion; €1.14 billion) in AUM, will do everything that isn’t investment. The CFO of a £10 billion-plus fund will likely have a reasonable-sized team below them, but will still have oversight of these functions, Patterson adds.

“In a recent meeting with a CFO of one of the larger funds, she explained to me that she had just completed a large office move that took over two years to complete. This involved everything from identifying a suitable office space to ordering the stationery.”

On that particular day, she had ordered pens, reviewed tax structures in multiple geographies, assisted with the setup of an overseas office, looked over AIFMD documentation and performed carry waterfall calculations for a new fund, and of course, met me, he adds.

“This is a very typical day for a CFO; they literally have to be a Jack (or Jill) of all trades,” Patterson says.

Talent pool

The requirement for different skillsets has had a ripple effect on the hiring pool. Traditionally, a private fund CFO may have been plucked from an accountancy firm, but a CFO hired in 2017 and beyond may be found elsewhere.

“The requirements [of a firm] and resources from which they will draw are very tailored. A large fund, for example, may have a number two who is ready to take the next step and act as a standalone,” Monti says. “Others are looking for people with a specific skillset, which opens up the pool away from public accounting.”

Patterson said those working at an accountancy firm that have been exposed to other areas of the business put themselves in a strong position. While they may have been in a fund accounting role, for example, they may have also been involved in the corporate and management accounting side.

From these positions they can help with tasks such as transaction due diligence, investor relations reports, software implementation and keeping up to date with regulatory aspects. These kind of people will be of increasing value to a fund that needs a CFO to do all non-investment tasks – and despite their job title, are worth considering.

Stemming the outflow

“To attract and retain top talent, we continually foster career growth opportunities for our team. We manage and communicate possible career paths for each employee, often discussing opportunities that could become available as the firm continues to grow,” Stewart Kohl, the Riverside Company’s co-chief executive, tells pfm.

“In addition to 360 degree reviews globally, the [firm] conducts an annual global talent review to identify the firm’s top performers in the context of possible succession at every level of the organization. We also carefully consider the best ways to continue to incentivize them and hone their skills in advance of promotion opportunities,” he adds.