Accounting firm Ernst & Young recently published their fifth annual survey of private equity CFOs. Unsurprisingly, they found that record inflows to private equity funds over the past few years have put strain on operations for all involved, no matter the fund size or geography.
For funds both large and small, heightened competition and investor demand mean that margin erosion is now a constant threat. (73% of CFOs surveyed said their firms have experienced investor pressure to reduce management fees.) In this environment, CFOs have become increasingly focused on improved operational efficiency in private equity — leveraging both technology and outsourcing — as a bulwark against shrinking profits.
Here are our takeaways from this year’s survey:
Fund accounting is seen as a low-value activity for in-house talent.
Across the board, private equity CFOs agree that they would prefer their teams spend time on strategic, value-added activities — for example, portfolio analytics and investor relations. More routine operational areas are generally viewed as cost centers, but still take up a large portion of managers’ time and attention.
When EY asked CFOs, “Where do you want your teams spending time?” fund accounting was the least popular answer of those given.
Technologically, private equity has been slow to catch up.
It’s clear that CFOs would like to spend less human capital doing fund accounting and more capital on improving operational efficiency in private equity. The most obvious way to achieve this would be through some sort of automation or streamlining technology.
However, when EY asked, “What areas are most challenging to implement technology systems in?” fund accounting led the group — meaning CFOs see fund accounting as the most difficult area to automate.
According to the EY authors, “the technology infrastructure of many private equity firms lags that of their peers within the financial services industry (banks, diversified asset managers, etc.).”
Which leads us to our next point…
It’s time to ditch the spreadsheets.
According to the survey, “CFOs have come to realize that manual data entry and reporting via spreadsheet are not an effective use of resources.” In fact, nearly 80% of CFOs said that use of spreadsheets as data sources was a top management concern.
At NES Financial, we believe (and have been saying for years) that moving from traditional, spreadsheet-based accounting and data management to integrated, technology-driven solutions is the first step on the path to operational excellence.
Automated investor reporting is the way of the future.
In today’s climate, satisfying investor requests for financial data is one of the most difficult areas in which fund managers struggle to manage costs. For smaller firms in particular, investors’ expectation of on-demand access to fund information can be onerous.
To the survey question, “What automated technology solutions would most benefit your accounting team?” more than half of respondents put investor reporting at the top of their wish list.
While the automation of data reporting to investors is tempting, CFOs remain concerned that this will sacrifice flexibility, thereby decreasing investor satisfaction.
We believe we’ve solved this dilemma with the NES Financial Investor Portal (built in to our proprietary technology platform), which offers investors 24/7 access to fund status, capital account financial data, document sharing and personal alerts — thereby decreasing the number of customized reporting requests that fund managers receive.
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You raise capital. We administer growth.
NES Financial’s Private Equity Fund Administration solutions utilize a uniquely scalable technology platform that features built-in compliance, data security, automated reporting and enhanced transparency.
The result? Greater efficiency, reduced operational risk and higher investor confidence, all of which allow you to focus on what you do best: raising capital and making prudent investments.
For more information, read our PE solution overview or call us at 1-800-339-1031.