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

Weight Of The World: The Changing Role Of Private Equity CFOsIn the face of unprecedented risk factors, today’s executives are shouldering a broader array or responsibilities than ever before 02Methodology03Foreword04Part 1: The leadership team07Part 2: Great responsibility10Part 3: Day in the life13ConclusionMethodologyIn Q2 2022, Mergermarket surveyed 30 chief financial officers (CFOs) of private equity (PE) firms on the changing aspects of their role.Respondents were divided equally between the US and Western Europe, and all came from firms with assets under management (AUM) of at least US$2bn. Specifically: eight represent firms with AUM between US$2bn-US$5bn; a further eight represent firms with AUM between US$6bn-US$10bn; seven represent firms with AUM between US$11bn-US$25bn; two represent firms with AUM between US$26bn-US$40bn; and five represent firms with AUM greater than US$40bn.The survey included a combination of qualitative and quantitative questions, and interviews were conducted over the telephone by appointment. Results were analyzed and collated by Mergermarket. All responses are anonymized and presented in aggregate.Table of Contents ForewordThe role of the PE CFO is undergoing a fundamental change. In addition to their traditional focus on financial oversight, CFOs are embracing a growing list of new responsibilities, spanning from technology developments to regulatory assessments and more.All this is happening against a backdrop of tectonic upheaval in global markets. Macroeconomic forces are in turmoil. The regulatory landscape is becoming less predictable. Digitalization is rewriting the rules of engagement. Meanwhile, competition for assets is increasingly fierce.What does this mean for modern CFOs? How is their work changing? This study set out to answer those questions.First, we consider the increasingly multidisciplinary nature of the role and how this contributes to CFOs’ increasing importance as strategic leaders. Second, we dig deeper into their changing responsibilities and the drivers of that change – as well as revealing what keeps CFOs awake at night. Third, we explore how CFOs are reapportioning their time to take account of their new obligations. And finally, we look at how responsibilities and concerns are likely to change in the years ahead – and what our survey respondents think it takes to be a successful PE CFO.Key findings –Almost all respondents (97%) agree that today’s CFOs are expected to take on broader responsibilities as strategic leaders beyond the traditional scope of fund accounting. –A fifth of the CFOs surveyed reveal that their firm does not currently have a chief executive officer (CEO) in place and 23% say their firm does not have a chief operating officer (COO) at this time. –Over a third of respondents (34%) say changes in the regulatory/tax environment is the issue that causes them the greatest anxiety in their role. A fifth of respondents say the same about keeping up with industry competitors. –More than two-thirds of respondents expect to allocate more time to portfolio analysis over the next 12 months. Half and 43% say the same about technology oversight and regulatory matters, respectively. –In addition to financial expertise, respondents believe the three most important attributes that a PE CFO should possess today are leadership qualities, relationship building skills and adaptability.3Weight Of The World: The Changing Role Of Private Equity CFOs Part 1: The leadership team The role of the CFO in PE firms is rapidly evolving.The expansion of PE over the past decade has been nothing short of phenomenal. To put this in context, 2021 saw a total of 5,448 PE buyouts, a threefold increase from the equivalent figure in 2011, according to Mergermarket data. The surge in aggregate value has been even more spectacular. Dealmakers inked transactions worth more than US$1.2tn in 2021 — a near sixfold increase compared to a decade ago.PE’s non-stop expansion has been mirrored by a rise in demand for assets. Deal multiples have skyrocketed in the face of increasingly stiff competition — not only from rival firms, but also from strategic buyers and institutional investors with deep pockets.53%47%NoYesDoes your firm intend to raise a fund over the next 12 months? (Select one)01020304050CBA44%25%31%If "Yes," will the fund be smaller, equal to, or larger than your most recently raised fund? (Select one)A LargerB EqualC SmallerTo these industry-specific challenges one must now add strong macroeconomic and geopolitical headwinds — among them rising inflation, interest rate hikes, trade wars and disruption to global supply chains. If this wasn’t enough already, there is the thorny question of regulation, now back in the headlines as US regulators consider tighter rules for buyout firms.Nonetheless, our respondents remain broadly bullish. More than half (53%) intend to raise a new fund over the next 12 months. Of those, nearly one-third (31%) report t