It’s been a challenging year, to say the least. The covid-19 pandemic has triggered a flurry of countervailing pressures, as well as revealed potential opportunities, that have pushed and pulled at the industry. The back office has had to be nimble, responding to changes in the operating environment with speed and flexibility. In addition to serving internal demands – crucially, managing the transition to remote working – teams have had to respond to an increasing number of LP inquiries that broadened in scope as investors sought clarity on portfolio performance.
Mapping these developments, we have identified seven charts from the Private Funds CFO Insights Survey 2021, conducted in partnership with Sanne, that most clearly demonstrate the impact of the pandemic on the back office. Together they form a picture of resilient teams pivoting in real time to meet short-term tests and trials, while keeping their eye on the long-term investment span of the asset class.
Outsourcing during covid-19
Alongside accounting and tax, IT has consistently featured as an area where CFOs are planning to rely more on outsourcing. It is no surprise then that during the pandemic, when everyone has been reliant on online tools, more than half of survey respondents report they will increase investment in digital technology. And while only 12 percent of respondents to this year’s survey indicate the pandemic has prompted them to increase the number of third-party providers they work with, almost half report that relationships with existing providers have strengthened over the past months.
New fund launches
When do managers plan to launch a new vehicle? For most, the answer is soon. Around three in four GPs are either raising capital now or expect to later this year or next. After a temporary pause around March, when both GPs and LPs took a breath to recalibrate as lockdowns came into force, marketing continued, and LPs resumed putting capital to work. Private equity’s long-term investment horizon has meant the asset class has remained attractive, and, for some sector-specific GPs, become even more so. “We have had an overwhelming demand in our current fundraise,” says a healthcare-focused venture capital firm CFO.
An overriding feature of fundraising in the current environment is that managers have not been able to meet existing and potential investors in person. For an industry based on relationships, this might have put the brakes on capital collecting plans. Not so. Our respondents report that although lack of face-to-face contact posed a challenge, it was not overwhelmingly difficult. Virtual meetings have become the norm. Some even say this new way of working has its advantages, such as giving LPs greater access to more team members during due diligence.
The pandemic has triggered an uptick in phishing attempts as hackers seek to exploit the transition to remote working. Back office teams are on high alert. A whopping 83 percent of CFOs report they are more conscious of their cybersecurity and that of their third-party providers. Now systems are in place, the risk is that teams become complacent. “Security training is key to ensuring people working from home are not too relaxed and let their guard down,” says Fred Steinberg, managing director for North America at Sanne Group.
Returning to work
Our survey responses were gathered in Q3 2020, six months into the pandemic and at a time when some back and middle office teams were beginning to return to work in their physical office space, with covid-19 precautions in place. The extended period of remote working the industry has experienced across the board is expected to have a lasting impact on how teams operate. Half of CFOs expect more flexible working arrangements going forward. One in 10 respondents are even considering downsizing their office footprint in light of a shift to working from home.
Over the past three years LPs have become more demanding with their information requests, placing an ever-increasing data burden on the back office. Our chart shows this clearly. More than two-thirds of CFOs report that LP interest in back office functions has increased, albeit at a slightly slower pace than in previous years. The pandemic has amplified this trend. What information are they asking for? CFOs have received inquiries about everything from business continuity planning and portfolio company performance, to credit lines and cybersecurity.
When will artificial intelligence hit the industry? At some point in the future remains the answer. While the back office has got quickly up to speed with the technical demands of remote working, adapting to video meetings, digital signatures, cloud hosting and more, and is increasingly receptive to automating some portfolio data collection tasks, teams are still hesitant about adopting AI. One reason is a gap in understanding of what exactly advanced technologies are and how they can meet specific business needs.