Weight Of The World: The Changing Role of Private Equity CFOs

WeightOfTheWorld:TheChangingRoleOfPrivateEquityCFOs Inthefaceofunprecedentedriskfactors,today’sexecutivesareshoulderingabroaderarrayorresponsibilitiesthaneverbefore TableofContents 02 Methodology 03 Foreword 04 Part1:Theleadershipteam 07 Part2:Greatresponsibility 10 Part3:Dayinthelife 13 Conclusion Methodology InQ22022,Mergermarketsurveyed30chieffinancialofficers(CFOs)ofprivateequity(PE)firmsonthechangingaspectsoftheirrole. RespondentsweredividedequallybetweentheUSandWesternEurope,andallcamefromfirmswithassetsundermanagement(AUM)ofatleastUS$2bn.Specifically:eightrepresentfirmswithAUMbetweenUS$2bn-US$5bn;afurthereightrepresentfirmswithAUMbetweenUS$6bn-US$10bn;sevenrepresentfirmswithAUMbetweenUS$11bn-US$25bn;tworepresentfirmswithAUMbetweenUS$26bn-US$40bn;andfiverepresentfirmswithAUMgreaterthanUS$40bn. Thesurveyincludedacombinationofqualitativeandquantitativequestions,andinterviewswereconductedoverthetelephonebyappointment.Resultswereanalyzedandcollated byMergermarket.Allresponsesareanonymizedandpresentedinaggregate. Foreword Keyfindings –Almostallrespondents(97%)agreethattoday’sCFOsareexpectedtotakeonbroaderresponsibilitiesasstrategicleadersbeyondthetraditionalscopeoffundaccounting. –AfifthoftheCFOssurveyedrevealthattheirfirmdoesnotcurrentlyhaveachiefexecutiveofficer(CEO)inplaceand23%saytheirfirmdoesnothaveachiefoperatingofficer(COO)atthistime. –Overathirdofrespondents(34%)saychangesintheregulatory/taxenvironmentistheissuethatcausesthemthegreatestanxietyintheirrole.Afifthofrespondentssaythesameaboutkeepingupwithindustrycompetitors. –Morethantwo-thirdsofrespondentsexpecttoallocatemoretimetoportfolioanalysisoverthenext 12months.Halfand43%saythesameabouttechnologyoversightandregulatorymatters,respectively. –Inadditiontofinancialexpertise,respondentsbelievethethreemostimportantattributesthataPECFOshouldpossesstodayareleadershipqualities,relationshipbuildingskillsandadaptability. TheroleofthePECFOisundergoingafundamentalchange.Inadditiontotheirtraditionalfocusonfinancial oversight,CFOsareembracingagrowinglistofnewresponsibilities,spanningfromtechnologydevelopmentstoregulatoryassessmentsandmore. Allthisishappeningagainstabackdropoftectonicupheavalinglobalmarkets.Macroeconomicforcesareinturmoil.Theregulatory landscapeisbecominglesspredictable.Digitalizationisrewritingtherulesofengagement.Meanwhile,competitionforassetsisincreasinglyfierce. WhatdoesthismeanformodernCFOs?Howistheirworkchanging?Thisstudysetouttoanswerthosequestions. First,weconsidertheincreasinglymultidisciplinarynatureoftheroleandhowthiscontributestoCFOs’increasingimportanceasstrategicleaders. Second,wedigdeeperintotheirchangingresponsibilitiesandthedriversofthatchange–aswellasrevealingwhatkeepsCFOsawakeatnight.Third,weexplorehowCFOsarereapportioningtheirtimetotakeaccountoftheirnewobligations.Andfinally,welookathowresponsibilitiesandconcernsarelikelytochangeintheyearsahead–and whatoursurveyrespondentsthinkittakestobeasuccessfulPECFO. WeightOfTheWorld:TheChangingRoleOfPrivateEquityCFOs3 Part1: Theleadershipteam TheroleoftheCFOinPEfirmsisrapidlyevolving. TheexpansionofPEoverthepastdecadehasbeennothingshortofphenomenal.Toputthisincontext,2021sawatotalof5,448PEbuyouts,athreefoldincreasefromtheequivalent figurein2011,accordingtoMergermarketdata.Thesurgeinaggregatevaluehasbeenevenmorespectacular.DealmakersinkedtransactionsworthmorethanUS$1.2tnin2021—anearsixfoldincreasecomparedtoadecadeago. PE’snon-stopexpansionhasbeenmirroredbyariseindemandforassets.Dealmultipleshaveskyrocketedinthefaceofincreasinglystiffcompetition —notonlyfromrivalfirms,butalsofromstrategicbuyersandinstitutionalinvestorswithdeeppockets. Doesyourfirmintendtoraiseafundoverthenext12months?(Selectone) Totheseindustry-specificchallengesonemustnowaddstrongmacroeconomicandgeopoliticalheadwinds—amongthemrising inflation,interestratehikes,tradewarsanddisruptiontoglobalsupplychains.Ifthiswasn’tenoughalready,thereisthethornyquestionofregulation,nowbackintheheadlinesasUSregulatorsconsidertighterrulesforbuyoutfirms. If"Yes,"willthefundbesmaller,equalto,orlargerthanyourmostrecentlyraisedfund?(Selectone) 50 44% 40 31% 30 25% 20 10 Nonetheless,ourrespondentsremainbroadlybullish.Morethanhalf(53%)intendtoraiseanewfundoverthenext12months.Ofthose,nearlyone-third(31%)reportthatthiswillbelarger thantheirmostrecentlyraisedfund.Afurther44%ofCFOswhoanswered“Yes”saythattheirnextfundwillbeequalinsizetoitspredecessor. Takemetoyourleader Ittakesanexceptionalleadershipgrouptonavigatethesechoppywaters.TheCFOisintegraltothesuccessofthatteam.Whatmakestherolesoinfluentialisaccesstoinformationfromacrosstheorganizationandrelationshipswithkeystakeholders.TheCFOisanaturalfocalpointforcriticalinformationflows. Buttherolegoesfurtherthanthis.Forexample,CFOsareplayingabiggerrolenotonlyinonboardingportfoliocompanies,butalsosharingbestpracticeswiththemthroughouttheholdingperiod.Inparallel,CFOsaredevotingmoretimetoportfolioanalysis—aswellasdealingwith thechallengesofdigitalizationandregulation.Thiscombinationofhands-onengagem