Role of the private equity firm's CFO increasing in importance as investors seek proven operational excellence

- Three-quarters of private equity (PE) firms plan to raise significant capital in the next two years.

- Highlighting the increased value of the finance function, 92% of investors think it's important or very important to meet their PE finance teams.

- Two-thirds (66%) of PE firms realize investors would like more transparent reporting, and 50% recognize investors' desire for more timely reporting.

- Three-quarters of investors want tax reporting within four months after year-end, although only 31% are currently receiving reports at this rate

- As a result of their expanding role, CFOs are shifting their focus to strategic functions including investor relations and portfolio analytics

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Feb 09, 2015, 10:00 ET

NEW YORK, Feb. 9, 2015 /PRNewswire/ -- Investors significantly value the finance function and are looking more closely at whether private equity funds have effectively pushed the enterprise towards operational excellence, extending the responsibilities of chief financial officers (CFOs) and increasing the importance of their role, according to Positioning to win, EY's second annual global private equity survey in collaboration with Private Equity International (PEI). Nearly one out of every two investors sees PE as the asset class of choice, and three-quarters of PE firms, recognizing market opportunities, plan to raise significant capital in the next two years. To mitigate the risk of rapid growth, CFOs see the need to shift their focus from tactical to strategic functions like investor relations and portfolio monitoring.

Scott Zimmerman, the EY Americas Private Equity Assurance Leader, says, "Our survey clearly shows that investors have added operational excellence to their definition of performance, with 49% of those surveyed identifying it as their top concern beyond track record. As a result, firms are counting on CFOs to drive business changes and strategically position their firms to win the competition for capital."

The survey, conducted between August and November 2014, documents the views, insights and observations of 170 private equity CFOs, financial executives and investors from the Americas, Europe and Asia among all asset classes.

"We are delighted to publish, again with EY, the second edition of this industry survey," commented Arleen Buckley, Director of Americas Events at PEI. "We look forward to continuing our work around this mission-critical business function for PE and share the results of our research that reflect the value CFOs provide to their organizations."

Key findings from the survey include:

Current compliance burdens expected to shift in next two years – cybersecurity remains a top priority

In recent years, CFOs have been spending more time than ever dealing with regulators, but they see themselves as having a better grasp on this moving forward. Reflecting their growing acceptance with regulatory processes, 14% of CFOs say that by 2017 they are less likely to focus on compliance issues; that compares to 3% of CFOs who have currently shifted their attention to other priorities.

CFOs are being asked to mitigate, if not eliminate, operating risks. Top among those risks is cybersecurity, with 56% of respondents saying it is the CFO's responsibility to oversee information security at PE firms. CFOs also foresee an increased focus on cybersecurity, and over the next 12 months they expect to increase fund activity to address various cybersecurity functions, including cyber threat analysis (59%), awareness programs (72%) and compliance programs (63%).

Reporting key for investors and PE firms; also area for gaining competitive advantage

As the burden of portfolio monitoring increases, investors are requesting granular information concerning valuations, and PE firms expect requests for customized reports to increase with incremental ask for both quality and quantity. Three-quarters of investors want tax reporting within four months after year-end, although only 31% are currently receiving reports at this rate, and up to 55% of investors are requesting one to four customized reports per year. To demonstrate operational excellence, PE CFOs believe they could improve investor reporting through transparency (66%), timeliness (50%) and frequency (12%). Meanwhile, 19% of CFOs think that PE fund partners see investor transparency as their most important business activity, and 22% expect this will be the case in two years. As expected, investors prefer to receive their financial (87%) and tax (84%) information in digital format.

PE CFOs are being tasked to do more with less

Investor demands and requests of PE firms engaged in due diligence will only increase, and CFOs must optimally manage their teams to meet the rising expectations. Headcounts are generally not keeping pace with the increase in responsibility. The average finance team is typically a fraction of the size of the investment team, regardless of geography or size of the firm, so CFOs are learning to do more with less. To meet demands, firms are looking into digital platforms and redesigned processes, including a possible outsourcing model. As an indication of investors' preference for in-house versus outsourced functions, portfolio analytics (60%), valuation (60%) and compliance (48%) are preferred by investors to be kept in-house, with fund accounting (31%), treasury (26%) and tax (12%) much more likely to be accepted with third-party involvement.

To read the full survey report, please go to: ey.com/PECFOSurvey2015.

About PEI

Private Equity International is published by PEI, the only global B2B information group focused exclusively on private equity, private real estate, private debt and infrastructure. As these four asset classes continue to grow in scale and significance – for investors, fund managers, financial practitioners and other service industries globally – so PEI is positioned to provide unparalleled business knowledge and intelligence to these communities.

With offices in London, New York and Hong Kong, PEI publishes five globally recognized magazines alongside five news websites, manages one of the most extensive databases dedicated to alternative assets, publishes a large library of specialist books and directories, and runs more than 30 market-leading conferences globally including the annual Private Equity CFOs and COOs forum in New York. PEI is the leading specialist information provider dedicated to alternative assets. For more information, visit www.thisispei.com.

About EY

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities.

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This news release has been issued by EYGM Limited, a member of the global EY organization that also does not provide any services to clients.

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