Interview: Bill Morrow, COO, Mid Europa Partners

WHAT MADE YOU DECIDE TO MOVE INTO THE PRIVATE EQUITY INDUSTRY?
I thought the emerging markets would be an interesting direction to go after 20-plus years of mainstream corporate banking, investment banking and finance, and so I moved to the European Bank for Reconstruction and Development (EBRD) to take a hands-on investment professional role in development banking in emerging markets. I ended up dealing mostly with Russia for the four years, but also a little bit with Central Europe. I had left to do a Russia private equity fund, then Russia collapsed two months later and I ended up here where I am in private equity for Central Europe.

HOW IS THE PRIVATE EQUITY WORLD DIFFERENT FROM YOUR PREVIOUS EXPERIENCE?
It was quite a change from Bank of America where there were hundreds of thousands of employees, to EBRD which was quite rule-bound, to private equity where we made the rules up as we went. That was a dramatic change in terms of institutional infrastructure. But that was one of the attractions of private equity: if you are one of the early people into a private equity fund, which I was, you get to help shape what it does and how it does it, and how the team is built.

HOW IS YOUR ROLE DEFINED?
My role has three main pieces: the management of the investment process – systematising and creating processes and procedures for the fund; investor relations and reporting; and credit risk management and compliance. I'm the one who negotiates the credit facilities at the fund level, and I'm also responsible for management of risk overall. We outsource the fund administration to a fund administrator in Guernsey. At the fund level, all of the management accounts are done by the fund administrator, obviously with heavy review and input from myself and from the controller here, but they actually keep the books in Guernsey

WHAT CHALLENGES ARE YOU CURRENTLY FACING?
On the regulatory side, the appropriate application of “know your client” rules needs to be reviewed. It's tricky because if you don't follow the guidelines exactly as you read them from the FSA, it could be a huge amount of work and you might do it earlier than you need to. It's a complicated topic that I'm not satisfied fits private equity very well, and as a consequence I need to improve guidelines to our deal teams on how we should apply FSA rules in this area. But valuation is probably the hardest thing to do right now. Our fund reports under IFRS, so we have the concept of fair value but we don't have the same accounting standards like FAS 157. To date there has been no new valuation guidance from EVCA like that which has been issued in the US on marking to market. It's particularly hard for us in Central Europe since we don't have a very good universe of public comparables to begin with, so in the very best of conditions even without the problems of plummeting values we've had a hard time not just plucking comparable multiples out of the air and saying that's what one of our companies is worth.

WHY DID YOU MOVE FROM THE DEAL SIDE TO THE COO ROLE?
I switched from being on the investment side to being the chief operating officer about three and a half years ago. It was partly because the firm had grown so much that somebody needed to spend their full time on the infrastructure and administration of the firm, and the rules and the processes of the firm. There were plenty of other capable guys to do the investments and I was probably more suited and more able to do some of the administration things. I'm also a generation older than my other colleagues here, and so we agreed that I would move off of the investment front and get involved in the administration.

NEW INITIATIVES FOR 2009?
might try in 2009 to see with the portfolio company CFOs or COOs, if it makes sense to try to centralize some portion of procurement. I've also been trying since I took over the job to put down on paper a step-by-step operational procedures manual. I've had this 90 percent completed operations manual for about two and a half years now, and the last 10 percent keeps changing as we find different or better ways to do it, or the world changes, so I'd actually like to finish that.