Value creation isn’t just the investment team’s purview

CFOs and COOs can assist in value creation at the portfolio level by suggesting service providers and watching KPIs.

GP finance and operations teams can drive value creation in ways that complement work from their investment-side colleagues amid a challenging macro environment.

At a panel for this year’s Private Funds CFO New York Forum, C-suite representatives enumerated various ways they can add value at the portfolio level, including by recommending service providers for portfolio companies and by giving weight to non-financial key performance indicators.

Adding value at the portfolio level

A CFO panelist compared his potential role in value creation with how the investment side offers support beyond writing equity checks by offering sectoral expertise, financial engineering experience and more, saying “I think it’s taking that same approach, that same concept for the finance and accounting team.”

The finance chief, who is with a Canada-based firm, cited arranging banking, treasury and insurance services for portfolio companies as examples.

The COO of an energy sector GP shared how his firm works with portfolio companies’ management teams, which tend to be new and small. The panelist said the GP doesn’t typically require managers to use service providers, but instead makes recommendations to them.

“We put together customized reports that we want to see and continue to find ways where we can be helpful finding office space, working with insurance underwriters, brokers,” the operating chief said.

Watching non-financial KPIs at portfolio companies is also valuable. The CFO cited one of his firm’s investments, an “app-based travel company,” which has data such as unique downloads and the conversion of downloads to making bookings.

Adding value at the fund level

Speakers also addressed working with service providers at the firm level to get savings.

Another CFO panelist noted how expenses are effectively assumed by LPs, stating “a lot of costs ultimately get rebilled to the funds.”

By finding the best providers for travel, market data and human resources, for example, they can add value to LPs’ investments.

In the case of the latter, professional employment organizations came up repeatedly among speakers. The second CFO panelist noted how PEOs have improved in recent years, citing better technology on the user-experience side.

The energy GP COO recalled how his 18-employee firm switched to a PEO from relying on a health insurance broker, noting that its costs dropped by 30 percent in the first year and with “stable” rises in costs thereafter.

Prior to changing, the operating chief recalled how the firm hopped between insurers and made people unhappy as a result.

“We were jumping from Aetna one year, to Blue Cross the next year, back to Aetna,” he said.