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Three ways CFOs are adapting to emerging private equity trends

Photographic portrait of Bridget Walsh
Bridget Walsh

EY Global Private Equity Industry Market Leader

Contributors

5 minute read 18 Jan. 2023
Related topics
Private equity
Wealth and asset management

A new era is here. The 2023 EY Global Private Equity Survey explores how organizations can build a bridge to the future.


Three questions to ask

  • How are emerging private equity trends shaping the strategic priorities of CFOs and COOs?
  • What factors do private equity CFOs see as vital to their strategy for accelerating their organization’s growth?
  • In the wake of the Great Resignation, what are the top talent management goals for financial executives at private equity firms?

The chief financial officer (CFO) and chief operating officer (COO) have left a lasting imprint on the private equity industry. Now, as the industry approaches maturity, it’s time to ask the question: What will be their legacy? Over the past 10 years, the EY Global Private Equity Survey has followed the evolving impact that financial executives have had on a rapidly growing industry. In our 10th annual survey, we reflect on the hurdles CFOs and COOs have faced over the past decade and look ahead to forecast the role these executives will play in shaping the future as they respond to emerging trends in private equity.

The CFO role has continued to evolve as private equity firms grew in size and complexity. No longer solely the leader of routine finance functions such as accounting, tax and accounts payable, the financial executive fills a broader role, one that includes more strategic functions, such as providing support to investment professionals and portfolio companies and overseeing a larger talent management pool. In this evolved leadership position, CFOs are expected to provide the data to support potential initiatives. This could include everything from adding product offerings to expanding the traditional investor base and even guiding the firm through such strategic transactions as selling equity in the firm or acquiring other businesses.

As we enter a new era of economic uncertainty, CFOs will need to rely heavily on the experience they have gained as they seek to help their organizations remain competitive. This means they must continue to focus on recruiting and retaining top talent, deploying advanced technologies to improve operational efficiency, and identifying new ways to expand product offerings. They will also need to continue honing their abilities as strategic advisors to other members of the C-suite, helping them manage portfolio companies and make the right investment decisions.

The future will also bring unforeseen advances and challenges, from new technology developments to an increasingly volatile geopolitical landscape. Judging from their track record during the 10 years that we’ve conducted this survey, we have every confidence that private equity CFOs will help their organizations step up and remain focused on sustainable growth and value creation. 

Download the 2023 EY Global Private Equity Survey

PDF (23 MB)
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1

Chapter 1

CFOs continue to adapt to emerging trends in private equity

Rapid growth has accentuated the importance of talent management in driving value creation.

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Private equity firms have experienced accelerated growth over the past 10 years, with assets under management (AUM) increasing from US$2 trillion in 2013 to US$4.4 trillion in 2022.1 This rapid growth has presented numerous hurdles for private equity firms, which have had to contend with proposals for greater regulatory oversight, increased competition for investment dollars and the escalating need to scale back-office functions and technology to support continued asset growth.
 

Managing the private equity business has also become a more mature process. Continued controls and rigor are being directed at running the management company, and CFOs and COOs are adding talent to provide firm owners with reliable data to help make informed decisions.
 

When asked to rank strategic priorities, aside from asset growth, CFOs continue to place talent management at the top of the list right behind private equity fundraising, which has remained a priority for firms across all levels of AUM. To support this ongoing growth, firms have consistently said that managing talent has increased in importance. Whether it’s hiring to scale with the growth, retaining top talent or implementing diversity, equity and inclusion (DEI) programs, firms are constantly focused on talent management as a way to remain competitive amid emerging private equity trends.
 

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Chapter 2

CFOs see talent management as key to private equity growth strategy

Seeking capital through retail and wealth channels and expanded product offerings is also critical.


During this period of rapid growth for the industry, one factor has remained constant among private equity trends: The industry continues to be a people-intensive business. Along with other C-suite executives, private equity CFOs have maintained a steady focus on hiring new talent and retaining people, and they see it as key to remaining competitive. Among the largest firms, 76% said retaining talent was critical, while 60% of smaller firms emphasized hiring the right talent. The other factors CFOs ranked as vital for accelerating growth were seeking additional sources of capital by looking to retail and wealth channels as well as expanding product offerings to offer a more diversified product mix to alternative investors.

Private equity CFOs are also expected to play a leading role in helping their organizations make informed decisions regarding transactions. When it comes to evaluating potential transactions, however, they consider more factors than simply maximizing value. Some 53% said they also value finding a partner who will help them grow the business, while another 47% also look for one that will help preserve firm culture.

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Chapter 3

Firms continue focus on creating a more inclusive workforce

Firms are fine tuning their approach on retaining workers with less than three years’ experience.


Private equity firms have consistently ranked talent management as a key strategic priority to running a successful business. In 2022, the press was dominated by reports of widespread hiring challenges amid the Great Resignation.

The survey found that the biggest challenge during this unprecedented job churn concerned attracting and retaining talent at the junior levels, those with less than three years of experience. Private equity firms will need to determine whether this is the impact of a generational shift that would require a more strategic action plan or if it is something that firms can address simply by engaging more with junior employees.

With respect to overall talent management, nearly half of all firms continued to rank hiring, recruiting and onboarding talent as a top priority. While increasing diversity continued to be an important goal, 41% of the firms surveyed noted that creating a more inclusive workforce was also a top priority. Only one in three ranked developing an effective hybrid work strategy as a priority as firms continued to move forward with return-to-office plans, despite the ongoing COVID-19 pandemic.

As firms encourage employees to return to offices and hire new talent that is expected to have an office presence, there continues to be disconnect between how frequently private equity firms want their employees in the office and how often employees actually want to be in the office.

Most CFOs, for example, expect employees to work more than three days per week in the office, which they believe to be line with employees’ expectations as well. That’s not always the case, however. For example, 38% of larger organizations believe that employees are more likely to want to work remotely, while 59% of smaller private equity firms believe their employees have a greater need and desire for in-person interactions.

Despite this disconnect, private equity firms remain confident in their ability to meet return-to-office goals, with 87% of all firms believing they will achieve these goals within the next 12 months.


Learn how CFOs are adapting to emerging private equity trends

  

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    Summary

    Looking ahead, CFOs and COOs must be ready help their organizations adapt to emerging trends in private equity as they compete in a new, potentially more volatile era. This will entail building a more robust management infrastructure, improving operational efficiency and refining their role as strategic leaders. By doing this, they will continue to help firms attract and retain talent and find new ways to drive private equity value creation.
     

    About this article

    Photographic portrait of Bridget Walsh
    Bridget Walsh
    EY Global Private Equity Industry Market Leader
    Recognized global leader and entrepreneurial businesswoman. Trusted advisor to the Global PE industry.

    Contributors

    Related topics
    Private equity
    Wealth and asset management

    EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.