From the archive: The operating committee

by Alice Murray 6 April 2020

“Our committee is cross-disciplinary and so it does include our CEO. For us, that sends the right signal to the wider firm”

Running a private capital funds business has become increasingly complex. In response to growing demands, a handful of houses are setting up operating committees to ensure the smooth running of their platforms. “The whole topic of the platform, that is everything non-deal related, is one that needs a huge amount of time and investment, and that needs organising,” explains a senior partner of a large panEuropean private equity group. More than that, efficient structures positively impact overall prosperity. “And good management can be a growth driver.”

What does it do?

Much as you would expect to see in a corporate setting, the OpCom focuses on everything operational including people related matters, IT, legal and compliance, property and office management, finance and tax.

Typically it sits below the Executive Committee, which is a far more common feature in the industry, and of course across the corporate spectrum. While the ExCom (or ComEx) makes the most important decisions relating to the firm, for private equity, these tend to centre around investment strategy. “The OpCom is a subsidiary of that. It’s much more day to day and ultimately not a competitor to the ExCom,” explains a senior operational partner.

Its main objective in many cases is to promote better cross disciplinary working; to reduce bi-lateral meetings and to prevent any operational challenges or opportunities from falling away.

Who’s involved?

The most obvious members to invite are of course heads of operational functions. But the jury appears to be out when it comes to including the CEO or managing partners. “Our committee is cross-disciplinary and so it does include our CEO, although I know of other firms that don’t include theirs. But for us, it sends the right signal to the wider firm to include the CEO,” says one partner.

The heads of businesses included in the OpCom must be onboard with decisions made by the committee, and the messaging agreed upon. “It helps them to run their teams more carefully,” explains the same partner.

While this particular circle clearly has a high level of influence - with participation from the CEO and strict messaging rules on how the group’s activities are conveyed to the wider team - not much is discussed with LPs. “We don’t communicate to them specifically on the committee but we do talk to them on operational matters,” they explain.

This feels like a missed trick. With investors increasingly concerned with operational matters; wanting greater detail on matters such as information security, responses to new regulations or diversity initiatives, is there an opportunity to report on the highlights of what these emerging operational groups are doing?

For now, it seems the main communication of OpComs takes place during operational due diligence, which is one of the key drivers in the formation of these groups. “When dealing with operational due diligence questions from investors, it requires detailed responses, so it’s not for the committee to carry this out. But having this strategy in place does make it far easier to shape those answers,” explains one partner.

Who has one?

Difficult to tell. Even members of these groups who contributed to this article have no public record of their firm’s operating committee. With one saying, “Private equity firms have lots of different governance models; what works for one might not work for another. It also makes a big difference if you are single product, global, public, a partnership and so on.”

A quick call around to a handful of the largest private equity firms found that most didn’t have one, or at least didn’t have anything set up in a formal manner they wanted to openly discuss.

Do I need one?

Deciphering whether or not your firm needs an operating committee is of course a highly individual thing. It will depend on how large the organisation is and how robust its operations are.

Furthermore, given these committees need input from senior figures across the firm, they could be a stretch too far for many GPs already spread thinly. But, temporary operating committees could be a smart way in which to organise the team ahead of a fundraise. By bringing together operational heads as well as managing partners or the CEO, this kind of working group could assess the key operational needs ahead of the raise, and work in a collaborative manner to ensure the necessary steps will be taken. This could potentially knock into the fundraising process itself, with the wider firm clear on how the platform is run and what it is hoping to achieve.

As private equity continues to grow, set ups such as operating committees will likely become more commonplace in response to increasing investor and regulatory demands. By cultivating a working group that meets regularly to focus on operational matters, this kind of organisational approach has the potential to shift preconceptions or change embedded thinking around cost centres and rainmakers.

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