Are we already in recession, nearing recession, or skirting recession? Depends on who you ask. Prognostications and technical definitions aside, nobody doubts that we’re in a downturn – and an entire generation that has never seen the likes of today’s inflation and interest rate hikes is without a playbook for dealing with it.
It’s a challenging time for private markets – a “pencils-down” moment. GPs and fund managers are laser-focused on fundraising (as well as cost-cutting), and there’s little room for error.
While there’s plenty of dry powder available – and some investors looking for opportunities amid the headwinds – the reality is that many LPs and institutions, believing that a recession has already started, have been pulling back as they wait for a sense of direction in the market. Others are obligated to do so because the recent drop in equities has over-skewed their allocations to real estate, forcing them to rebalance.
Those high-quality investors who are ready to put some of their powder to work will be looking for strong, stable, well-managed funds – managers they can trust to be in the trenches with them. As they do, funds with a visible talent culture and a deep bench will have a leg up.
Heckuva time to face an accountant shortage
Recent reporting from major news outlets has raised more than a few alarm bells about the dangers a shortage of accountants poses to the broader corporate economy. One opinion piece from Bloomberg threatened that ‘The Accountant Shortage Threatens Capitalism’s Future.’ In the past two years alone, more than 300,000 accountants have left their jobs in the US. Compounding the problem, college grads (accounting majors included) are increasingly reluctant to sign up for accounting jobs (even Big Four firms with deep pockets and aggressive recruiting practices are feeling the crunch). And there are fewer of those college grads to go around: down nearly 9 percent in 2020, compared to 2012. Accounting talent seems to be trapped in a cycle of diminishing returns – and that’s having an outsize effect on private markets.
The last thing you want is for a sought-after deal to crumble because your finance team is short-staffed and miss a deadline. And yet these last stressful months have pushed some finance departments to the limit, exposing operational vulnerabilities when they can least afford it.
A playbook for a ‘culture of presence’
The alternatives industry doesn’t operate from the rigid playbooks found in other commoditized industries. Flexibility, creativity, responsiveness are the name of the game. There’s no silver bullet for holding on to the right accounting talent, or panacea for finding new recruits. While there has been a great deal of conversation about the investment side of firms, we don’t talk enough about the finance side. And what matters the most here are intangible assets you can’t buy off the shelf: trust, brand, relationships, culture.
The pandemic has changed the rules of relating – not just with clients but with employees. Unfortunately, many in our industry have yet to adapt to this transformed era. The Great Resignation should not have been a surprise: talented people have realized they have options and accounting has been especially hard hit.
I believe the pre-covid “culture of the office” has been permanently supplanted by a more fluid “culture of presence” – one that’s not only in tune with the way work is done today, but also with the preferences and predilections of the talent you must compete for. That goes for the finance team in particular, not just roving fundraisers and those sourcing deals.
Experience vividly demonstrates that institutional investors will gravitate to teams with visible signs of a healthy talent culture, and that goes all the way through to the accounting team, fund closes and reporting. Here are four of those signs:
- Have a strategy for culture and acknowledge it publicly. Culture really does eat strategy for breakfast, as the famed business consultant Peter Drucker once said – and not just when the chips are down. Emphatically choosing to embed your culture within your traditional strategic framework will elevate and drive both for your finance team, giving you the best of all worlds – a cohesive culture, a magnet for the best accounting and operations talent, and a point of differentiation for investors.
- Be present everywhere. This is where the “culture of presence” comes into play. Our firm, for example, is site-agnostic, yet there’s nothing “virtual” about our work, or our commitment to our clients. That more flexible model (and our distributed accounting and operations workforce) enables us to redouble our physical presence wherever and whenever it’s needed. Clients can feel the difference enabled by this commitment to mobility.
- Have a visibly deep bench. Private markets are special and so are fund and partner accounting for instance. They require agility, problem-solving acuity – and plenty of smart people. Those people don’t grow on trees, and they don’t all (want to) live in mega-cities. The key to attracting and retaining the deep bench of accounting talent that you need is to go where they are – rather than force them to be where you are. Having that larger wingspan also means you can offer them opportunities to grow, both horizontally and vertically: a huge recruitment edge when you are scouring college accounting programs, and a further proof point of stability.
- Go above and beyond, always. Investment management is a relationship-based industry on the investing side, and that is true on the finance side as well. You can’t fake a track record. This point was vividly illustrated to me during the earliest days of the pandemic, when my then-colleague at MUFG, Gila Cohen, reported that a large public pension had called her on a Saturday morning to say, “We got left at the altar by two of our biggest relationships. Are you guys available to lend?” Gila was able to turn around a sizable loan in only three weeks. Needless to say, that’s a relationship that will never break under pressure. The same approach on the banking side applies to accounting relationships, fund services and leaning in.
Private markets are uniquely suited to this moment: Be sure you are, too
It is axiomatic of private markets that disruption can spell opportunity. But you can only realize those opportunities if you have the human, operational ballast you need – responsive, flexible people who are able to meet the client where they are, and respond to their needs, reliably and intelligently. Ignore the accounting shortage at your own peril.
The key to winning the long-term confidence of investors at this critical point is to show you have that staying power, and you can be trusted. The accounting, reporting and operations function is the core of that trust. In times of turmoil, that is without question an essential asset.
Steven Boydstun is president of MUFG Investor Services, US