Where have all the controllers gone?

Chief financial officers at private equity firms will tell you they're overburdened enough as it is. So when an opening appears in the finance department, filling that position often turns into a harrowing experience, sometimes stretching for months, even past the year mark. Job turnover on the finance team tends to be very expensive, in terms of money, time and effort, and increased competition from hedge funds as well as from other private equity funds only makes the process that much more challenging.

As a result, private equity firms these days face a two-pronged predicament:recruiting talent and retaining talent. Given the long-term nature of private equity, then, part of the solution lies in identifying potential job candidates that not only bring with them strong technical experience but also a mindset that gels with the firm and the asset class at large.

James Hutter, the chief financial officer of New York-based JP Morgan Partners, says that when his firm is looking at finance-team candidates, he sees a mixed bag:?We have those that think ?What's my next step in the firm? Where do I see myself here in five years?? versus others that think ?I would like to work at a hedge fund because it's sexy, and I have not thought through what I will be doing five years from now.??

Hutter continues: ?What we try to do is look for someone that has a long-term horizon and has a passion for private equity.?

Of course, experience and a long-term outlook must be accompanied by the key ingredient in any job search:good chemistry. ?We cannot overemphasize that the person has to have the ?right fit? with the firm, Hutter explains. ?They can have all the technical experience in the world, but if they do not have the right attitude, the team sprit and willingness to be part of a bigger group, they may not get through the second or third day of interviews.?

Howard Weiss, the chief financial officer of New York-based private equity firm Castle Harlan, says that his firm has a very professional, work-oriented environment. As a result, Weiss says any job applicant for his team must expect that though ?Castle Harlan does not become your entire life, it does become an important part of your life.?

Weiss says that it's also difficult to find the top people in the profession who are able to do what the job requires, in addition to handling menial tasks. ?Since we are not a large firm, you may be doing top-level negotiations in the morning and bank reconciliations in the afternoon.?

?What we try to do is look for someone that has a long-term horizon and has a passion for private equity.?

Ed Colloton, chief operating officer at Larchmont, New York-based venture capital firm Bessemer Venture Partners, says his firm also tends to look for candidates with Big Four accounting experience when staffing the finance team. ?They're coming out of the Big Four, and they're attracted to the alternative asset classes. They want to be controllers or CFOs, and want to end up in a top-tier fund. But like a lot of young people, they may not yet know what they want to be or do.?

DOOR NUMBER ONE OR DOOR NUMBER TWO?
Colloton says that the shortage of finance talent is in part due to a constrained hiring market because the Big Four accounting firms have recently recruited less people. That, combined with an explosion in the number of hedge funds-not to mention higher growth on the private equity side-has resulted in a tighter overall market of talented people. So the question aspiring controllers are now facing during the job hunt is why choose a private equity shop over a hedge fund.

?Private equity can be more interesting compared to hedge funds in that the deals are all different, Colloton says. ?At a hedge fund, you may just end up calculating the net asset value of the portfolio at the end of each day.

?We compete against hedge funds for talented people, adds Collton. ?They cannot challenge people in the same way we can. By working on interesting and challenging deals, people stay engaged, and the turnover is relatively low at the top funds.?

Weiss says that one of his recent hires saw a job at a hedge fund as having a lot of reconciling positions. ?Salaries may be higher, but when you are at a private equity firm, you are more involved with the investments, i.e. the companies we own, the businesses we manage. He found the whole concept to be more interesting.?

Weiss adds:?We pay well, but we do not try to outbid someone from a hedge fund. People have to want to work here. If money, within limits, is more important than the work and environment, I am happy to lose someone to a hedge fund.?

But once recruits are made, firms have the equally difficult task of retaining their finance staffs. Of course, a firm must pay up to get and keep a particular candidate. But according to Hutter, there is a lot to be done on the qualitative side to retain staff, and he's ?not sure if CFOs of all private equity firms today are as focused on retention as they should be.?

?You obviously need to make a monetary investment in people. Furthermore, you have to make sure people have a career path, and that they understand how they will get to the next level, says Hutter. ?It is important to have frequent discussions with your staff as opposed to just the annual review process.?

Hutter goes on to say that straightforward communication is often underrated as a means of retention-not just communication between the CFO and the finance staff, but within the entire firm. ?The finance team needs to feel it is part of the bigger picture and helps with the success of the firm, rather than just being part of the back office and carrying out routine processes.?

THE MAGIC NUMBER
As far as how many hands on deck are necessary for a smooth-sailing finance function, most CFOs agree that there is no set number of professionals that must be matched up with a certain amount of capital committed. In the end, it's all based on work load, and a potential job candidate must often be prepared to juggle multiple responsibilities at the same time. Weiss says that at Castle Harlan, for instance, because he himself is involved in many aspects of his firm-including staffing, due diligence and communication-his staff inevitably assists him with all these functions as well.

?There are a lot of people who have two years of experience and they think they may be ready for a senior position.?

Hutter says that all the factors that drive finance staffing-number of funds, complexity of waterfalls, number of blocker or special-purpose entities, number of LPs-are what make private equity an ?exciting place to be in. It's not a commodity. It's hard to benchmark two private equity firms with the same cookie-cutter approach. It's hard to correlate finance levels because it's multivariable.?

Whether or not there is an actual crisis in the hiring of qualified finance professionals is yet to be seen, Hutter admits there is at least a perceived shortage of talent out there right now. ?There are a lot of people who have two years of experience and they think they may be ready for a senior position, he says. In today's market, there are firms willing to pay especially if they are in desperate straits.?