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Time to bite back

by Alice Murray 8 November 2019

“If the CFO isn’t capable of quickly responding then we consider that a big risk and a potential reason not to invest. It would mean their house isn’t in order.” Bjorn Tremmerie, EIF

Private equity’s non-investment C-level role (CFOs, COOs) has undoubtedly experienced the most drastic proliferation in recent years. Ten years ago, private equity funds could happily get by with an FD overseeing the numbers, who had little to no interaction with investors or the portfolio.

Today, however, the industry’s operational leaders are dealing with a vast variety of new and emerging functions, including greater transparency requirements, heightened investor scrutiny and extensive operational due diligence; growing levels of interactions with portfolio companies such as data collection and operational support; complex work on fund and deal structures; an avalanche of new regulations; keeping up with technological developments; a continued move to outsourcing; developing and implementing ESG policies and procedures; cybersecurity; and finally, talent recruitment and retention.

Paul Cunningham, CFO of Africa-focused GP Helios Partners says: “The complexity has increased, and specifically for what we do and our investment strategy. The CFO role has moved from just keeping the score to playing a more proactive role in the running of the portfolio and structuring transactions.”

According to Cunningham, several years ago CFOs could set up a deal structure that worked for the fund, and reuse that for every investment. “Now, each time you need to look in more detail to see what has changed in those jurisdictions, and continually revisit old ones to see if it still works. Do you need to restructure because the environment has changed? Or because the structure was put in place based on exit strategies the deal team envisioned, and then they end up using an exit route never considered at the time.”

Says Barnaby Piggott, CEO of Holland Mountain, “Today, CFOs and COOs are facing increased regulatory demands as well as increased scrutiny from investors, on both technology and operations. The most recent topical addition to their workload is ESG, and not just from a portfolio perspective, but also from a fund manager perspective; for example their own diversity and carbon footprint.”

Another new addition to the seemingly endless task-list facing CFOs and COOs is cyber security. “There’s a terrible overreliance on spreadsheets,” says Graeme Faulds, director of product at eVestment Private Markets. “They have their place for one-off analysis but not for anything that’s repeatable. CFOs are being asked questions by LPs throughout the fund cycle, which they need to answer quickly and effectively. In a world increasingly aware of cyber security, sending information out on spreadsheets where there’s no control over where that goes doesn’t fit well.”

This sentiment is echoed by Bjorn Tremmerie at the European Investment Fund (EIF): “A key area where the CFO really needs to function is on cyber security. We’ve experienced this first hand when one of our GPs was the victim of cyber-fraud. Thankfully the GP had excellent procedures in place so they were reimbursed by their insurance company for the damage suffered. But that wouldn’t have happened if there had been negligence. This is an increasingly important aspect.”

Tremmerie also testifies to the crucial role CFOs now play in the fundraising process. “We are very demanding when it comes to analysing a firm’s track record and we need the CFO there because they sit on the data; investment partners can’t always provide that level of detail. If the CFO of the firm isn’t capable of quickly responding to our questions then we consider that to be a big risk and a potential reason not to invest. It would mean their house isn’t in order; that they’re not able to operate in the 21st century.”


As private equity matures, thanks to major regulation including the AIFMD, and as investor appetite for the strategy grows, pressure on the back office is intensifying. However, the enormity of this new threat is not being fully recognised. Says one LP, “CFOs can be replaced; it’s a resource that can be traded in given that they’re not an investment partner, they’re not driving returns.”

However, this line of thinking seems at odds with the intrinsic role operational leaders play in ensuring returns are not only protected, but increasingly how they’re achieved. Without robust operational leadership, deals risk falling over through poor structuring, returns eroded from poor tax planning, falling foul of new regulations and facing hefty fines, security could be breached, LPs could be misinformed - all manner of hard fought alpha risks being lost.

Why then is the vital work undertaken by the back office not receiving the recognition it deserves?

One reason could be a lack of visibility. Says one CFO: “A lot of the work we do is behind the scenes. It doesn’t get seen by the deal team. There’s a perception that we’re just adding up numbers on spreadsheets, but in reality we’re ensuring that the right information and numbers are going to the bank, the regulators, the investors and the partners. Or we’re thinking about our approach to valuations. All of this work is underwater; it’s not visible.”

Another reason for the silent suffering could be the nature of CFOs themselves. “There’s a tendency to be a perfectionist, which can be detrimental as it slows things down. We would probably do ourselves a favour by just being good enough,” says another.

“What we do isn’t active value creation, but it prevents value leaking,” adds a third. “Does that get recognised? Does anyone recognise the complexity? Probably not. I feel a little frustrated but it’s my cross to bear. And that’s the same feeling across my peer group; it’s the nature of the beast.”

A CFO is born

To better understand the nature of those willing to take on such vast yet arguably poorly recognised roles, it’s worth thinking about how a CFO or a COO in private equity comes to be. “You can promote from within the firm, someone from the investment team or IR team becomes the COO for example. This can work well, but the challenge is that the requisite skills are fairly different,” muses Piggott. “The other option is to bring someone in from another industry, a law or accountancy firm. They will know what good looks like from a COO perspective, but they’re less likely to have the needed subject matter expertise.”

In response to accusations of not being recognised, many will point to the number of CFOs, COOs and other operational professionals tied into carry. However, the amount of carry apportioned to CFOs and their teams can present a problem in itself. With almost every private equity structure heavily weighting carry towards investment teams, the back office is often an afterthought. And because of this, we’re already starting to see attrition.

Says Jen Simkins, director of executive search & advisory at March Consultants, “In our experience a high-percentage of CFOs and their deputies have carry. Some individuals, especially those in deputy roles, are willing to take a view and walk away from carry for a role in a more dynamic firm with a potentially larger slice of carry.”

Standing in the way of control

The perception problem is further compounded by the nature of private equity firms themselves. Typically structured as owner-managed businesses, decisions are often led by committees. “In order to operationally transform you’ve got to give up some control, and historically managing partners are reluctant to do that, to the potential detriment of their business,” says Charles Peck, managing director and co-founder of March Consultants.

Furthermore, private equity houses have grown in a siloed manner. During the industry’s early days, everything revolved around the deal team with finance providing a supporting role. As fundraising required greater levels of sophistication, the investor relations function grew as a separate silo. “The IR and investment teams have become their own fiefdoms; IR look at the world and their data from an investor/advisor perspective, finance look at the world from a legal entity perspective. They want to do things their own way,” observes Piggott. “How do you breakdown those siloes?”

That question is now being put to operational leaders, and is reflected in recent recruitment mandates. “We’re being asked about collegiate candidates,” reveals Mark Maynard, also managing director and co-founder of March Consultants. “They want to make sure that individuals can demonstrate breadth and can get involved with a broad spectrum of departments.”

Money talks

One of the most compelling aspects in all of this is the investor perspective. After all, if LPs are increasingly taking a view on a firm’s operations, and those in charge of it, then this will likely be the most effective catalyst for change.

“There are some investors I speak to regularly, which depends on the nature of investors themselves. For those who want to go deeper, they come to me,” says Cunningham. “When it comes to fundraising, I don’t go out on the roadshows, but I’m pulling the data together and the due diligence. I’m doing more as more operational due diligence is coming through. There are definitely more and more LPs doing more detailed questioning; more than we’ve seen before.”

Indeed, the complexity of queries coming in from LPs during a fund’s life has escalated dramatically. “We had a recent case where we were invested in a deal with a manager through six different pockets,” recalls EIF’s Tremmerie. “All of them have their own specificities, requirements and fiscal treatments. When a distribution was netted off with a capital call it took some interaction with the CFO to reconcile the different cash flows for the various mandates.”

Looking to the largest private equity houses - the KKRs, Blackstones, Carlyles and Apollos - with huge fee streams able to support burgeoning back offices, recent years have highlighted their increasing awareness and recognition of these roles. Indeed, KKR’s succession plan saw Scott Nuttal and Joe Bae named as co-presidents and co-chief operating officers, charged with leading the entire organisation. The bulge-bracket house more recently created the role of chief information innovation officer.

Patching it up

This is all well and good for firms able to afford dedicated heads of businesses across the operational domain. For the average mid-market or venture player, the options are more limited. “We recruited a new person to the back office this year so that has provided a little breathing space. But finding the time to think about and implement new processes remains a struggle,” says one CFO.

“If there’s something specific then we might look to bring someone in on a temporary basis, but generally we wouldn’t do that. We like team members to have the corporate as well as historical knowledge. And that also makes it harder to outsource,” says Cunningham.

However, outsourcing has emerged as a vital lifeline for many firms, especially as the use of specialist providers gives comfort to investors. But it comes with its own challenges. “The skillset of a COO overseeing various service providers and their delivery is very different to a COO that’s managing multiple internal teams to achieve the same goals,” notes Piggott.

The other option is to look to technology; implementing systems to reach that ever-elusive goal of automation. One tech provider experiencing a surge in the adoption of their system because of the CFO / COO role-stretch is eVestment. According to Faulds, there are two key drivers for when CFOs approach them. “One group comes to us after a fundraise, which might seem counterintuitive. They tell us they need to give their team six months to recover, but they can’t put them through that experience again, so they’re looking for a system like ours to be better placed next time around.”

Today, the level of data required and sophistication of investor analysis has far outpaced the experience in previous raises, but there’s a nervousness around undertaking fixes or major system changes during the process. “They realise that part of the business needs systemising,” adds Faulds.

“The second occurance is when there’s an overreliance on Excel; where one or two people are keepers of those spreadsheets. If one leaves then the CFO realises the people risk, which is very high if you’re reliant on spreadsheets,” says Faulds. Because spreadsheets are so flexible, it’s understandable that the back office continues to rely on them. But they are undoubtedly risky, especially when operational professionals view their value-add as being the keeper of highly complex spreadsheets.

New wave

Putting all of this together, the natural response from any private equity practitioner worth their while is: this is an industry ripe for disruption.

And it would seem there are already some disruptors making in-roads. Looking to the new generation of private equity firms provides a clear picture of the industry’s future. Summa Equity Partners, 53 Degrees Capital, Novalpina and Apera are just a small selection of newly-created managers that have put operational leaders in the heart of their founding teams, highlighting the importance of this role today when raising institutional capital. (See table below)

For those already working in finance teams, but not yet at CFO level, there is a growing expectation on how they will shape the industry’s future. “It’s the next generation, who are currently the number twos, who are increasingly driving the agenda on technology and operational improvements,” says Peck.

As private equity reaches new heights of maturity, as investor demand continues to strengthen, and as deals become increasingly more difficult to source and execute, it will fall to operational leaders to ensure investment and IR teams can thrive in such a demanding environment. It is time for the back office to take a front seat; to be a respected voice when it comes to strategy, and to be properly recognised in the carry hierarchy for the complexity of their work and the value they deliver.

Next generation



Founding operators

Summa Equity Partners

Launched in 2016

Jenny Keisu, partner and COO

53 Degrees Capital

Launched in 2019

Anne Sheedy, CFO and founding partner

SAGA Private Equity

Spun out in 2018

Lise Ingildsen, CFO joined in Jan 2018 when team spun-out of Danke PE


Launched in 2016

Rob Shaw, partner and CFO

LightBay Capital

Raised $615m for debut PE fund in 2018

Stella Ho, managing director, CCO, head of operations

Volpi Capital

Closed maiden fund at €185m hard-cap in 2018

Barbara Maluska, finance and operations. Joined in June 2018


Launched in 2019

Maarten Scholten, GC and Eva Sitbon, FD


Closed debut fund on €1bn in 2019

Mark Tiner, CFO, joined in June 2019

Limerston Capital

Closed first fund on £200m in August 2017

Martim Avillez, co-founder, COO


Closed maiden fund on £92m in 2017

Kate Jenkins, finance manager

Crane Venture

Held $90m second close on Crane I fund in 2019

Bonnie Kraus, COO & partner


Closed first fund at £200m hard-cap in 2018

Nikola Sutherland, founding partner, member of Investment Committee, COO

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