Calling all CFOs

Wide-ranging research into the role of private equity chief financial officers reveals a subtle, collective shift in how these finance professionals plan to prioritize their job responsibilities in the time ahead –  an important revelation at a time when the CFO role is expanding, evolving and testing the limits of back office resources.

CFOs often wear multiple hats at private equity firms, including investor reporting and information technology duties outside of their traditional accounting and finance functions. But as demands on the position grow, more CFOs may want to consider outside specialists to handle their core tasks or invest in back- and mid-office technology to ease their work burdens.

This insight (among others) was made possible from research conducted by professional services firm EY in conjunction with parent publisher PEI. The full results were presented to some 500 private fund finance and operational professionals at the 2015 PEI CFOs and COOs Forum earlier this year in New York.

One of the biggest takeaways from the findings is that CFOs plan to shift their focus away from “tactical” functions like tax and valuation to more “strategic” functions like investor relations and portfolio analytics. Currently 16 percent of CFOs name tax as one of the most important “tactical functions” of the job, but over the next two years only 10 percent of CFOs expect that to remain the same. Similar drops in valuation (from 10 percent to 7 percent) and treasury (from 9 percent to 6 percent) were expected in the next two years. Only fund accounting was a tactical function expected to increase in importance.

Compliance was the priority CFOs expect to fall fastest; with only 7 percent of respondents naming it important in two years’ time, down significantly from 27 percent today. Scott Zimmerman, EY private equity assurance leader for Americas, and one of the study’s lead authors, puts this down to CFOs becoming more comfortable with the regulatory environment “now that we’re five years out from the signing of Dodd-Frank the burden of SEC registration is a more familiar reality for private equity firms.”

Zimmerman stressed that the results did not mean traditional finance functions were no longer vital to firms’ success, but indicated that CFOs have recognized the need to “free up their resources so greater focus could be given to the more strategic priorities.”

If unable to automate certain traditional tasks, outsourcing may be the most attractive route for CFOs to accomplish the goal. The research shows investors are comfortable with outsourcing less sacred functions like fund accounting, treasury and tax, but push back on functions they consider more important to keep in-house such as portfolio analytics and valuation.

“My biggest challenge is the diversity of my responsibilities. It’s hard to set priorities when they all are very important,” said one CFO in the survey. In fact, that sentiment captures neatly what was shared and discussed at the CFO Forum itself, which we cover more in this report. Now in its twelfth year, it’s proven to be the single most important industry event for private fund finance and operational professionals, who may take some solace in the fact that all CFOs and COO are experiencing the same types of struggles and challenges we here at pfm reported on from the forum sidelines.

Click here for coverage from the 2015 CFOs and COOs Forum.