Jason Murphy wondered if he’d still have a job by the end of 2008. It was October at the height of the global financial crisis, and stock markets worldwide were tumbling.
At 33 years old, he had just started as chief financial officer of The Riverside Company’s management company, and he and his wife had just moved to the suburbs of New York City from North Carolina. Murphy was a numbers guy and entrusted with handling the management company’s finances.
“I started with Riverside right as the financial crisis hit. That was a crazy time,” Murphy tells pfm. “I’m on the train about to start my first day and I can remember so many people discussing the fear of losing their job, the overall health of the economy, sharing stories of friends who lost their jobs.”
Sensing cost-cutting was on the horizon, he drafted a budget slide called ‘The Good, the Bad and the Ugly’ detailing various options for reducing costs heading into The Great Recession and presented it to the firm’s co-chief executive officers, Stewart Kohl and Béla Szigethy. The two executives firmly believed that employees were the most valuable assets and that the firm was willing to cut non-employment-related costs for a couple of years to ride out the downturn.
At the same time, Riverside’s transacting partners decided the firm should be an aggressive buyer in 2009 and 2010. They argued the world wasn’t going to end and prices would recover. Those were important lessons for Murphy: people come first at Riverside, and it’s best to ride out the downs in pursuit of long-term gains.
Amid the turmoil, the flagship Riverside Capital Appreciation Fund closed in 2009 at $1.17 billion, which was 30 percent above its $900 million target and the firm’s first fund to cross $1 billion. Before that, Riverside had launched an Asia fund in 2008 and a microcap fund in 2006, according to PEI data.
“Having closed-end funds with a 10-year life and no redemption option allowed us to weather the storm and to stay the course of continued plans for growth,” Murphy says.
“My role is to be realistic. If our co-CEOs want to say, ‘We’re going to grow the business 25 percent a year,’ I say, ‘OK, great. Let’s do that and model that out. What if we only grow 10 percent a year? And what if we don’t grow? Or what if we grow and then we’re flat?’ That’s where I think it’s my job to add sensitivity and variability to our plans.
“If you ask someone to prepare a five-year budget, you know it’s going to look like a nice steady growing line. But when you look back historically the line doesn’t grow steady. It definitely looks more like a rollercoaster ride, and you need to build that into your planning and forecast model.”
Almost a decade later, staying the course has paid off. The firm is doing well and expanding into another asset class – private debt.
The company last year started raising money for its Riverside Credit Solutions Fund I, which is dedicated to mid-market lending. It held its first close of $110 million out of a targeted $350 million, and an early investor was State of Michigan Retirement Systems, which committed $50 million.
Riverside has more than $7 billion in assets under management and oversees a global portfolio of more than 80 companies. These range from a specialty chemicals distributor in Malaysia and an Australian software developer for energy markets, to a private school operator in Sweden and a stem-cell preserver in Portugal. Almost three-quarters of its companies, though, are based in the US in businesses as varied as glass manufacturers to a dating service.
Murphy oversees a staff of nine, eight of whom are based in Cleveland. Until recently his team had four team members in New York, two in Cleveland and two in Brussels. With improvements in systems and a focus on finding and retaining staff, Murphy has been able to consolidate his team in Cleveland.
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Education: MBA from the Kenan-Flagler Business School at the University of North Carolina
Master’s in Accounting from Georgia State University
BS Accounting and Finance from Florida State University
Professional qualification: Certified Public Accountant
Riverside hires firms to help with processing local payroll and filing annual tax statements, as well as filings for value-added tax and goods and services tax in Europe and Asia.
“I can focus more on strategy and making sure my team has the right tools and right systems in place, and that we’re more and more integrated with the firm,” Murphy says. “I can work closer with our IT department on integration and process improvement. And then with IT and the other departments in the firm, we can sit back and think strategically about what we can be doing better as a firm, whether it is process improvement, new or improved reporting tools or even systems replacements, and bring those ideas to the co-chief executives.”
When Murphy joined Riverside a decade ago, he had to deal with software that had been recently implemented and not really the best solution for the firm. It had just switched from QuickBooks to SAP Business One. The software was a better fit for manufacturing companies, not a multinational private equity firm, he says. At the time, there were three different databases, which made report writing terrible, he adds. Eventually, SAP Business One was replaced with NetSuite, which was a better fit.
The formal process for deciding on and implementing NetSuite was run by Riverside’s project management office, an example of the evolution at Riverside. IT was an outsourced function until 2011, when Riverside hired a director of information technology, Eric Feldman, who is now the chief information officer. Feldman has built out a team, including the PMO, which has been tasked with rationalizing and integrating systems across the firm. Murphy notes the implementation of NetSuite and integration with other systems (reducing manual input between data sources) would not have been nearly the success it was without the partnership that he has with the firm’s information technology team.
Murphy has a master’s in accounting, which included information systems classes, and an MBA. This has served him well in understanding tech colleagues, and he was part of the push for creating the in-house IT department.
Earlier in his career as a senior consultant at Deloitte, Murphy had the opportunity to provide recommendations that would make clients’ work more efficient. He brought that attitude to Riverside – understanding that change is constant, and the firm should adapt quickly.
“We’re continuing to look to grow. Our portfolio is always changing as we buy and sell. As we expand into debt there are new metrics to track,” says Murphy. “It’s a very dynamic environment. For some people that’s a bad thing, and for some people that’s a very good thing. For me it’s a very good thing. There’s always an opportunity to do something different and to keep your mind engaged.
“And there’s always, always an opportunity. The way we’re doing things today is different than what we were doing five or 10 years ago, and of course with faster turnaround. It will be different in two years, in one year or six months from now as we continue to see accelerated pace of change.”
Part of Murphy’s curiosity extends to how the back office should meet the challenges and benefits from the latest advancements in technology, such as blockchain, machine learning and artificial intelligence. That means collecting data and using information that can influence the sale or acquisition of portfolio companies as well as business decision-making at the management company level.
Evolution in accounting
“My dream in life long before I started at Riverside is that accounting is an area that’s ripe for evolution. Systems have enabled my vision, but automation and artificial intelligence are probably going to complete it. When you think of accounting, you think of – and we still operate largely in this cycle – ‘We have to close the books every month.’ We then have to report the numbers every month, and we can’t tell you what happened until at least a week or two after it happened. But that’s not the world we live in today,” Murphy says.
He refers to point-of-sale transactions that automatically notify users what the balance is on a credit card or bank account, delivering information in real time. Nowadays, the manufacturing department can tell you what’s coming off the assembly line as it’s coming off, but accountants can’t do that with finances. If journal entries or accruals could be made on monthly or quarterly items such as revenue, payroll, rent and such every day, then the books could be “closed” every day and that would provide readily available financial data on a daily basis, Murphy says.
If you were an 18-year-old going to college saying, ‘What should I major in?’ I would say, ‘You should train to be a tax attorney.’ That’s a job for life
“That’s where the evolution needs to go. It’s what I call the continuous close, where the owners of a business or CEOs can go in today and see what’s happened in the form of a complete set of financials, not just a sales report. You don’t have to wait until the end of the month anymore.”
While daily entries are yet to happen, monitoring the tax component of the business is part of Murphy’s job, and passage of the Tax Cuts and Jobs Act at the end of 2017 keeps him busy.
“As people are digesting the law, there’s not a lot of guidance out yet. We continue to read up on current developments and also work with our outside accountants and lawyers to get up to speed,” he says.
Murphy points to the base erosion and anti-abuse tax and the global intangible low taxed income, both of which are designed to ensure that money earned abroad by US businesses is repatriated to the US.
“As a multinational we now have to deal with these new rules. For the management company, in particular, there are new rules on how we can bring our gains and losses back to the US and how they are netted against other activities. As a flow-through entity this is particularly important. The law also gets down into the weeds on items that affect all of our employees,” he says.
Murphy refers to the permanent elimination of the deduction for meals and entertainment expenses, which can be sizeable costs for general partners who want to meet their investors. Another sticking point is the loss of the deduction on commuting expenses at the federal level, which puts employers in a bind as to whether they should stop providing transportation benefits to workers.
“If you were an 18-year-old going to college saying, ‘What should I major in?’ I would say, ‘You should train to be a tax attorney.’ That’s a job for life. Taxation is getting more aggressive, more complex and changing at greater frequency,” Murphy says.
Heading into his second decade in private equity, Murphy dispenses some hard advice for those seeking to break into an industry laden with professionals whose backgrounds are rooted in finance and accounting.
“Communication is huge. There are just so many nuances, particularly when you’re multi-strategy and have over 80 portfolio companies. We’ve got to be very clear that we don’t have expenses billed to the wrong fund or the wrong portfolio company,” he says.
Riverside has been the job he’s held the longest. When he started the job in private equity, he ultimately reported to the chief operating officer. His role has since evolved to cover many responsibilities, and he now reports directly to the co-chief executives.
The constant learning and the challenges in finding solutions to problems keep him happily busy. He compares the work at Riverside to a car, in which every component has a seemingly simple task, but bringing them all together creates a complex structure that works.
“It used to be you would evaluate your strategy maybe every three to five years. Now we must be thinking about it every six to 12 months,” Murphy says. “It helps to have an intellectual curiosity, and I think that’s why I’ve been here as long as I have.”