Private equity CFOs to "double down" on tech, says survey by EY
Private equity firms have a reputation for investing billions of dollars in innovative technology companies. However, over the last 12-18 months they’ve also increasingly looked to procure new tech tools to drive efficiency and decision-making internally.
We’ve observed that trend in our niche of legal spend management – and it’s also reflected broadly across the larger technology sector. That’s one of the top-level findings from the 2021 Global Private Equity Survey by EY, which is based on a survey of 127 COOs, CFOs and financial executives employed by PE firms.
“Private equity firms and their CFOs made the move to a remote working environment with relative ease, thanks in large part to the foundation they had built to revamp their operating model and modernize their IT infrastructure,” wrote the report’s authors.
After seeing what’s possible, “forward-looking firms recognized this as an opportunity to improve and redefine their operating model”. As a result, “CFOs say they are planning to double down on their past bets in technology and people”.
3 tech takeaways from this private equity survey
In our minds, CFOs are champions of strategy and innovation in PE so we took a closer look at some of the nuances behind this movement to double down on technology. Below are some of our takeaways from the report.
1. Tech is facilitating permanent change.
During the peak of the pandemic (and we say that with hesitation, given news of the delta variant), the aspects that had the greatest impact on PE were as follows:
- Transitioning to a remote workforce (60%)
- Determining the office size, layout and location (50%), and
- Holding annual meetings virtually (46%).
Those effects have prompted some permanent changes. More than “80% of [PE] firms of all sizes expect at least a moderate change required for future operating models”.
Remote work will have a big part of that permanent change, too. “Across the board in almost all functional areas surveyed, firms expect employees to work remotely approximately 30% of the time (or roughly one or two days in a typical five-day workweek) as firms return to their physical locations”.
2. Tech-enabled relationships with investors.
Private equity firms derived benefits from their investment in operational technologies with investor relations too. As the report put it, “the previous investment in building out LP portals allowed for continued access by investors to information. At the same time, firms relied on virtual tools to meet with prospective investors”.
This was quantified in the survey data as well. PE managers seemed more anxious about the effects of a remote workplace than their limited partners (LPs). For example, 66% of PE managers reported “minimal disruption” to their relationships compared to 80% of investors.
The survey had similar findings around larger issues with new investors – that is relationships still in the formative stages. About one in three (30%) of PE managers experienced a “major disruption” to new relationships but minimal disruption to existing ones – while just 16% of LPs reported a similar experience.
Those statistics are amazing given the emphasis the industry has traditionally had on face-to-face meetings. That’s not to say in-person engagements are no longer necessary, but the community has proven you can still build relationships effectively with proper planning and tech tools.
3. Tech remains on the shortlist of strategic PE priorities.
While asset growth, talent and environmental, social and governance (ESG) concerns ranked ahead of technology among the top five strategic priorities in PE – tech takes up the remaining two spots rounding out the list.
More specifically, about one in four PE firms cited “enhancing back-office processes and technology” as their fourth strategic priority. This was universally true for PE firms of all sizes.
Similarly, “front-office technology transformation” came in fifth place on the list of priorities. However, it’s a more pressing issue among the largest PE firms. For example, 25% of PE firms with more than $15 billion in assets under management (AUM) identified front office tech as a top priority. By comparison, just 8% of firms with between $2.5-$15 billion AUM and 2% of firms with under $2.5 billion AUM said the same.
While it’s not stated in the report, technology is certainly a common thread woven throughout all these strategic priorities. Tech is pivotal to scale operations and manage asset growth.
Building on tech success
The report concludes that the investments PE had made in operational technologies are what enabled the community to manage the constraints imposed by the pandemic effectively. Even so, the authors urge PE organizations to capitalize on their success.
Indeed, the survey data suggests most are doing just that: “63% plan to improve technology to enable a more remote workforce”.
“Firms should rightly view this as a successful return on investment and focus on building upon their success to guide how their organization operates in a post-pandemic environment,” concludes the report.
Further, “Innovative firms that respond to these hurdles will have a competitive advantage in attracting and retaining the best front- and back-office talent in a post-pandemic work environment”.
The full report runs 32 pages long and is freely available for download here: 2021 Global Private Equity Survey.
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