On the minds of the CFOs that helped shape private equity

For our 20th anniversary conference last year, we decided to honor some of the CFOs that have done most to transform the role of the CFO into one of such strategic importance. We focused on the CFOs at well-performing firms who have also built a reputation for contributing to the broader private funds community.

Blinn Cirella,
CFO,
Saw Mill Capital 

Joshua Cherry-Seto,
Partner and CFO,
Start-Up Health

Melissa Dickerson,
Chief financial officer and managing director, operations,
Genstar Capital

Sandra Kim-Suk,
CFO,
Engine No. 1

Robert Lewin,
Partner, CFO,
KKR

Adam Weinstein,
Managing director,
COO and CFO,
New Mountain Capital

Many of the CFOs on the list are frequent panelists at our New York Forum (Blinn Cirella is this year’s chairperson), and often contribute to these very pages. Others are CFOs at market-leading firms like Blackstone and KKR, who always attract interest and inform how the CFOs at firms of all sizes conduct themselves. All the people on the list made a huge difference to the industry’s CFO class, a judgement made by our editorial staff and the CFOs themselves.

All told a similar story of how they look back on their early days and realise just how lonely the role was. and how often they felt like they had more questions than answers. But all these stories ended in similar fashion. They found, or noticed, a mentor to set an example, and they built a tribe of peers that would support them through the likes of a financial crisis.

For this year’s CFO Forum report, we decided to catch up with six of the CFOs on the list to find out what’s keeping them awake at night as we head into 2024.

What industry issues keep you awake at night? 

Adam Weinstein: I’d break them into three categories. One, the domestic political risk from the upcoming election. Politics is pretty polarizing today and there is a mentality of “do new things” and then “undo new things” based on which party is in power.

Two, the geopolitical risk. There are regional conflicts in the world going on today, with few people able to predict what they’ll look like a year from now. This keeps me up at night as a private equity professional and a human being.

And three, regulatory risk – we are trying to determine what new rules will be put in place that change how we have to operate in the future.

Sandra Kim-Suk: First, there’s talent management, in terms of keeping our people engaged, especially on the finance and ops side, there’s so little room for growth at a lot of these organizations.

Then there’s the regulatory demands that only seem to grow, which can be a lot for a firm like mine, that runs lean. And finally, there’s cybersecurity, which is becoming more important as technologies, including AI, continue to evolve, making it more challenging to stay ahead of current threats.

Joshua Cherry-Seto: Cybersecurity and application of AI. On cybersecurity, it is both a growing risk to our portfolio companies where technology isn’t necessarily their central value proposition, combined with the likely drilling in on the portfolio by the SEC in the coming sessions.

On AI, it is more about understanding how the effective use of generative AI is going to fundamentally change not just our PE operations, but that of all of our portfolio companies.

Blinn Cirella: I worry about mistakes or missing something important, which is driven by the increased level of complexity over the last few years and the fact that staffing levels have not kept pace.

CFOs as well as their staff need to do thoughtful work – meaning, we need time to think about what we are doing. I’m constantly saying: “Just because a spreadsheet ties, doesn’t mean it’s right.” It currently seems that everyone, including our service providers, are racing toward a deadline and are moving so fast that no one has time to think things through. It’s become a “just get it done mentality” with little to no time to think through what we’re doing – and that worries me.

What do you think will be the biggest challenge of 2024?

SKS: The US elections will bring a lot of political uncertainty, and the continued inflation and high rates will play a role, though there are some experts that see them moderating by midyear. Nevertheless, these both make the fundraising environment more challenging.

JCS: Fundraising and making sure there isn’t too much scope creep in the search to deploy capital.

MD: Political events and policy changes at the national and international levels can create uncertainty. Trade disputes, geopolitical tensions, and changes in government leadership can affect investment strategies and risk profiles.

Robert Lewin: You can’t predict what will happen with capital markets, rates, or any other potential hurdles in 2024. It feels a little easier to forecast out over a longer period of time. When I look at how we’re performing in this difficult environment, we have three distinct growth engines: asset management, strategic holdings (core PE) and insurance. As a result, something is likely to be active and performing at all times, and once market conditions begin to improve, the operating leverage we have becomes really powerful. From that perspective, the next few years feel really good.

How do you think the industry as it relates to your responsibilities will develop over the next decade? 

SKS: The biggest thing I’m trying to do is look at how to embrace new technology. AI may do a lot to automate the more routine functions, but we’ll still need to use good judgment for broader strategic decisions. Finance professionals will look differently than they do today – and the challenge will be to provide opportunities for the next generation where judgement can be exercised when tasks that used to provide them with that experience will soon become automated.

JCS: Deeper technology integration demands, including AI, and tighter third-party service partner relationships, such as co-sourcing.

BC: The need for more and more consultants. For the past few years, I’ve been saying I think the PE CFO of the future will look more like a project manager. The long list of responsibilities along with the increasing complexities makes it impossible to knowledgably handle everything effectively, efficiently and without errors.

MD: Streamlining operations to allow investment teams to focus on core competencies and adapt to rapidly changing business environments is a strategic imperative for PE firms in this competitive landscape. Firms will continue to outsource non-core functions, develop leaner decision-making processes, and cultivate a culture of adaptability.

What’s the biggest change that you’ve seen over your career? 

AW: The CFO role has evolved from primarily reporting to investors after the fact, and often has become broader. Some CFOs lead all of the non-investment areas of the firm: finance; technology, including cybersecurity; and compliance. Others take on even broader responsibilities beyond just the non-investment team. LPs are more interested in these functions than they were 10 or even five years ago. It’s an important core competency of a firm to be best in class in these areas as well as investment performance.

BC: Complexity. I started in PE before FAS 157 (now ASC 820) was introduced. Investments were held at cost until right before a sale. Few states, if any, required non-resident withholding payments. Now, I think just about every state requires non-resident withholding payments. Then came the requirement to register with the US Securities and Exchange Commission, which necessitates an ever-changing compliance program.

SKS: CFOs today not only need to understand and manage the basics of accounting, reporting and tax, but also need to understand capital allocation, forecasting, and how broader events will impact our business.

Melissa Dickerson: Among the many changes, the one that has given me the most satisfaction is the greater diversity of viewpoints and perspectives at the table.

I can recall a period when resumes were uniform, decisions were shrouded in secrecy, and curiosity was discouraged. However, today’s landscape is entirely different. Private equity is moving toward greater transparency, and I expect this trend to continue in the future.