Against a backdrop of exponential growth for private capital markets, driven by faster and quicker fundraising, coupled with an expected market correction, a recent CFO survey has unsurprisingly concluded that the CFO, COO role continues to broaden and become more complex.
Back office software provider AltaReturn canvassed the opinions of CFOs operating in private equity, debt, venture capital and real estate funds. It is important to note 65% of respondents were US based, 23% from Europe and 11% from Asia / Australia.
When asked about areas of concern and focus, a large proportion, 76% of respondents, cited portfolio monitoring as the area of operations they most want to improve. Said the report: “One area of notorious inefficiency is in the collection and management of financials and KPIs from underlying portfolio companies (and properties for real estate managers). Often the domain of spreadsheets that get emailed back and forth between company management and fund sponsor, it’s an area that has seen marked improvements in efficiency with the advent of cloud-based computing and related technologies.”
Investor reporting was also a popular concern, with 48% of respondents aiming to boost efficiencies in this field. According to the report: “Often what LPs want from their GPs is a constantly moving target. Says one CFO at U.S.-based $3 billion fund manager, ‘Some of our investors, particularly ones that use a consultant, seem to change their reporting requirements every 6 months. I don’t know if it’s from changes in market dynamics or what’s currently fashionable, but it takes a considerable toll on us.’”
Other areas of focus for operational improvement over the next year or so were management accounting / internal accounting (48%), data privacy / cybersecurity (36%), and fund accounting (11%).
It’s no secret the CFO role has expanded dramatically as private capital markets have grown. In terms of where the survey respondents predict they will be spending more of their time over the next 12-18 months, compliance and regulatory matters scored the highest, with 50% expecting to spend more time on this.
Management accounting and internal reporting was also found to be an area demanding more CFO time, with 50% saying they will be working on this over the next 12-18 months.
A whopping 66% of CFO respondents said their fund structures are becoming more complex. According to the report, added complexity is being driven by larger funds incorporating investors from various domiciles and tax structures, as well as the continued popularity of co-investing.
When asked what type of entities are now being used in funds, 66.7% of respondents listed co-investments. Blockers / AIVs were cited by 47.6% of respondents; feeders by 28.6%; separate accounts by 25.4%, JVs by 19.1%, and all of the above by 19.1%.
Less than half of the respondents (48%) said they use a fund administrator. Of those that don’t (38%) the reasons were listed as: lack of control (51%); cost (26%); poor previous experience (14%); data privacy concerns (6%); and lack of ROI (3%).
By far the greatest concern for respondents was economic conditions over the next 12-18 months, including slowing global GDP and rising interest rates: 33% of CFOs cited this as their top worry.
Second was recruitment, with 20% of CFOs concerned about hiring talent. Regulation and tax laws received the same 20%, with rising deal multiples was a concern for 16% of respondents. Margin erosion was the least worrying, with just 9% of CFOs selecting this.