Profile: Kenny Miller, FPE Capital

by Silvia Saccardi 23 February 2023

The Drawdown (TDD): FPE became an independent business in 2016, following the spinout from Stonehage Fleming. How did your role change as a result of this?

Kenny Miller (KM): As a business unit within Stonehage Fleming, we benefited from the support functions of the group, such as IT, HR, corporate finance and compliance. When FPE became independent, raising an institutional-backed fund for the first time, these support functions had to be fulfilled in-house, so certainly the nature of the role changed.

Back in 2016, we started with a strong investment track record in software, but a blank piece of paper on how to put a framework in place that would enable that to happen.

TDD: What kind of things does your role as CFO involve?

KM: My role can involve anything that's not making investment decisions – as expected there is the financial focus around investor reporting, corporate reporting, treasury management and tax, while in addition a large amount of the role revolves around COO activities such as IT, HR and being the compliance officer. Everything and anything that comes through the business, from moving offices to ESG, comes across my desk. The role is split between CFO and COO, which is typical of funds our size, and it’s the variety that this brings that makes the role interesting.

TDD: What did you have to consider, knowing that you were working with a blank piece of paper?

KM: There has always been a long-term vision of what FPE should mean to its stakeholders – be they employees, investors or portfolio companies – and that has always been to the fore when planning. We spent time discussing where we wanted to be in the longer term and looked at what structure would be required to enable that, covering areas such as systems we felt would be best suited to us, choosing the correct advisers for the business and developing HR policies to allow us to attract and retain the best talent. Although it may have looked like we were over-engineering for the size of business we were, we are now seeing the benefits of that as we invest our second institutional fund with a team that has steadily grown to double that of 2016.

TDD: Was there an element of rebranding that was needed?

KM: Yes, we had to move away from that family-office feel and, instead, look and feel like what we are – a partner-controlled and highly specialised investment firm. It was about positioning ourselves as a specialist investor focused on software and software services companies going through their second stage of growth, and ensuring our public face clearly aligned with this messaging.

To look to understand what our stakeholders wanted, we did a few things. We ran a process with an external facilitator, to find out what our team thought we should look like and what our core values should be – then we looked at our peer group to see what they offered and how they marketed themselves. After that, it was a question of looking internally – what was our USP, what were our brand values and how would we position ourselves with clear differentiators in this crowded and growing marketplace?

It’s a continuous process but the biggest step was clearly when we transitioned our ownership and rebranded FPE in 2016. And it has been evolving steadily from that point.

TDD: How has the change in investor base from individual to institutional investors influenced the way in which you work?

KM: Pre-2016, the investor base consisted of almost entirely HNW individuals, who were typically focussed on cash-to-cash returns and tax information. Coinciding with the formation of FPE, the raising of FPE Fund II changed this mix to a predominately institutional investor base. Institutional investors are receiving reports from hundreds of fund managers, and ideally they want the same metrics in the same format every time – they don't want to trawl through reports or information to get to them. We have tried to ensure that we include as many relevant metrics as possible while incorporating any investor specific requests.

That being said, we have maintained a pool of HNWs – about 10% of our funds by commitments – who are long-term investors, industry experts and former portfolio company management teams. While we provide the same reports to every investor, whether an institution or a HNW, we appreciate that much of this will not have the same relevance to a HNW as it will to an institutional investor.

It is really important to us that we continue to maintain the human connection and, to this end, we encourage the HNWs and institutional investors to pick up the phone with any questions to chat through them with us. And that's the nuance – we will do the same reports and we'll send the same information but when it comes to the softer stuff, we are more than happy to pick up the phone, drop an email and maintain that relationship. One of the key differentiators for us as business is the people element. It’s key to our portfolio company relationships and also with investors.

TDD: What are you aiming to achieve during the next 12 months?

KM: How we successfully manage to embed ESG through the portfolio and the organisation will be a daily consideration. We are observing the trend in the industry where ESG is moving away from just being a few bullet points on a website. While we have been evolving our approach over the longer term, in the next 12 months we will look to add further substance and meaning behind our commitments. Part of the ESG implementation will also involve looking at ways to make what we do more efficient, in terms of portfolio management and reporting.

Generally, the wider business is always looking at different ways of working more effectively. Last year, as we successfully closed our current fund (FPE III), we saw the benefits of learnings implemented to processes from previous fundraisings. This year, as the portfolio, team and AUM continue to grow, we aim to continually adapt and improve to ensure we are in the best position to face whatever the next challenge may be.

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Meaningful metrics

Miller shares his insights on how he hopes ESG metrics can be integrated further into the business, to showcase how its software portfolio companies can have a social impact. “It's about capturing aspects of companies holistically. I think our challenge will be having a consistency in metrics across the portfolio that ensures the reporting is meaningful and relevant. 

“And it's not easy,” Miller adds. “We invest in software businesses, therefore it's not simply a case of measuring carbon neutrality as these businesses are not consuming raw materials. So, it's important to look at things from a different vantage point. For example, we have seen fantastic employee growth across the portfolio. We also hope to look at board diversity, company supply chains, office efficiency and how staff get to work.”

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