How has your approach to outsourcing evolved over the years?
We have been very deliberate about our approach to outsourcing, looking carefully at the skills we feel it is important to have in-house, particularly as it pertains to our portfolio companies. Wherever we see something critical to our success that is replicable, we look to do that in-house. But, interestingly, the exact nature of the functions a firm chooses to either bring in-house or outsource can change over time.
Imagine a big buyout consultancy unit, for example, that might find itself focused on how to build effective sales teams. That specialist expertise may be brought in-house for several years, but as those skills become more widely spread across the investment team, specialists may no longer be required and they may decide to manage the process internally through the investment team, whilst outsourcing the actual delivery.
At Livingbridge, we outsource some of our compliance, fund management and accounting functions and certain aspects of the work we do with portfolio companies, such as cost reduction. In fact, we owned a business that did just that, Efficio, until last year. But something like talent management, that is so intrinsically important to what we do, will always be kept in-house.
Which areas of your operations do you believe will be most impacted by technology going forward?
We have always been pretty good at embracing technology. Our direct origination function has been tech-led for years now, whereas many are only now beginning to explore how tech can be used to support the deal sourcing function. I do think that there are aspects of marketing that will be made more efficient by technology. But when I look at what we do daily from a deal perspective, I don’t think there is a fundamental technology shift on the way. We have embraced a lot of it already.
How do you think the nature of the fundraising market is likely to evolve, particularly as it pertains to the rise of the retail investor?
We are hearing a lot about retail investors becoming more interested in private equity, particularly from the US, and it is hard to believe that Europe won’t follow. Managing retail money is not easy, however. The regulatory and compliance environment is very different if you are dealing with those investors directly. Retail funds investing in private equity are likely to grow, but this will add risk and complexity to the private equity industry which has grown up with an institutional funding model.
And what is your approach to succession?
It is not so much about identifying the person who is going to take over. It’s about developing and supporting future talent to ensure there will be people ready to take over once the founding partners are ready to leave. This is a very live topic for the majority of private equity firms. We shouldn’t assume we can carry on forever. Bring great people on board and then give them the space and support so that they can grow and learn and do things their own way. Out of that will emerge the next natural group of leaders.