Private Equity CFOs face wide-ranging reporting demands

The Chief Financial Officer (CFOs) of Private Equity (PE) firms are facing wide-ranging reporting demands from regulators and investors in the years since the financial crisis, leading finance teams to search for better data management and technology solutions.

This development according to a survey ‘disruption: seismic shifts in the private equity industry’ by EY’s 2016 global implies forward-looking funds will need to make investments to enhance their data management capabilities to successfully address the regulatory burdens that did not exist even five years ago.

The third annual survey of 103 private equity funds and 88 investors, conducted in collaboration with Private Equity International, finds 47% of private equity funds have faced a regulatory audit or examination in the past two years, compared to 41% in 2014 and 28% in 2013.

The increased regulatory focus has led investors to request more information from funds, and 45% of investors surveyed say fund managers can improve their reporting, compared to 11% in 2014, a 400% increase.

Scott Zimmerman, EY Americas Private Equity Assurance Leader, said: “This regulatory disruption has caused a seismic shift in the private equity industry as investors and regulators demand better information more quickly. To magnify the problem, the reporting processes of private equity funds are still manually intensive, placing more burden on CFOs and their finance teams. Forward-looking funds will need to make investments to enhance their data management capabilities to successfully address the regulatory burdens that did not exist even five years ago.”

Arleen Buckley, Private Equity International Director of Americas Events, adds: “Today’s private equity CFO is at the helm of a vastly more complex organisation than a decade ago and is tasked with ensuring that all key stakeholders, whether they are the general partner, limited partner or regulator, are satisfied.”

With the advent of new reporting regimes, 77% of investors surveyed say private equity funds could improve the transparency of their reporting, while 60% say timeliness is critical. Despite the demand for increased speed and transparency of reporting, CFOs surveyed are reliant on manual processes and spreadsheets to handle critical tasks such as valuation (68%), portfolio analytics (58%) and risk management (41%).

Zimmerman says: “The prevailing thought is that digital solutions will help solve the reporting dilemma. However, such technology architecture does not yet exist, and it will not hold all the answers. Ultimately, the only way for private equity funds to break through these barriers is to invest in a fundamental overhaul of their manual-intensive, people-focused operating models.”

While finance executives are confident they have enough people, they are less confident that their people are performing the right tasks or have the appropriate competencies and capabilities, the survey finds.

As they seek to optimise talent, CFOs are looking outside the industry for new hires. Employees with less than five years of experience are in highest demand, reflecting the manual data-management processes still dominating the current landscape, with 46% of respondents recruiting talent at this level from professional services firms and 19% from within the private equity industry.

Thirty-one percent of private equity funds surveyed recruit talent with more than 10 years of experience from professional services firms, as CFOs seek more seasoned operational experience that can provide a longer-term, strategic view to guide the business.

Iheanyi Nwachukwu