Seismic shifts in the private equity industry
EY LLC, Kyiv, Ukraine,
Wed, Feb 24, 2016
Private equity funds and investors view data and digital solutions as the keys to winning the regulatory and reporting game
- 45% of investors identified reporting as their top concern of private equity (PE) firms, up from 11% in 2014
- 63% of PE CFOs view data management as their top reporting challenge
- Only 7% of investors surveyed are satisfied with cybersecurity policies of fund managers
NEW YORK, KYIV, 24 FEBRUARY 2016. Private equity CFOs are facing wide-ranging reporting demands from regulators and investors in the years since the financial crisis, leading finance teams to search for better data management and technology solutions, according to Disruption: seismic shifts in the private equity industry, EY’s 2016 global private equity fund and investor survey.
The third annual survey of 103 private equity funds and 88 investors, conducted in collaboration with Private Equity International, finds 47% of private equity funds have faced a regulatory audit or examination in the past two years, compared to 41% in 2014 and 28% in 2013. The increased regulatory focus has led investors to request more information from funds, and 45% of investors surveyed say fund managers can improve their reporting, compared to 11% in 2014, a 400% increase.
Scott Zimmerman, EY Americas Private Equity Assurance Leader, says:
“This regulatory disruption has caused a seismic shift in the private equity industry as investors and regulators demand better information more quickly. To magnify the problem, the reporting processes of private equity funds are still manually intensive, placing more burden on CFOs and their finance teams. Forward-looking funds will need to make investments to enhance their data management capabilities to successfully address the regulatory burdens that did not exist even five years ago.”
Arleen Buckley, PEI Director of Americas Events, adds: “Today’s private equity CFO is at the helm of a vastly more complex organization than a decade ago and is tasked with ensuring that all key stakeholders, whether they are the general partner, limited partner or regulator, are satisfied.”
Transparency and timeliness are critical, but reporting is a manual process
With the advent of new reporting regimes, 77% of investors surveyed say private equity funds could improve the transparency of their reporting, while 60% say timeliness is critical. Despite the demand for increased speed and transparency of reporting, CFOs surveyed are reliant on manual processes and spreadsheets to handle critical tasks such as valuation (68%), portfolio analytics (58%) and risk management (41%).
Zimmerman says: “The prevailing thought is that digital solutions will help solve the reporting dilemma. However, such technology architecture does not yet exist, and it will not hold all the answers. Ultimately, the only way for private equity funds to break through these barriers is to invest in a fundamental overhaul of their manual-intensive, people-focused operating models.”
Funds seek new talent to meet challenges
While finance executives are confident they have enough people, they are less confident that their people are performing the right tasks or have the appropriate competencies and capabilities, the survey finds. As they seek to optimize talent, CFOs are looking outside the industry for new hires. Employees with less than five years of experience are in highest demand, reflecting the manual data-management processes still dominating the current landscape, with 46% of respondents recruiting talent at this level from professional services firms and 19% from within the private equity industry.
Thirty-one percent of private equity funds surveyed recruit talent with more than 10 years of experience from professional services firms, as CFOs seek more seasoned operational experience that can provide a longer-term, strategic view to guide the business.
Cybersecurity is the next top priority
Investors and private equity funds are increasing their focus on cybersecurity policies and programs as funds adjust to the digital age and security incidents continue to rise. Investors view compliance monitoring and awareness training (41%) and cybersecurity threat analyses (33%) as the most important cybersecurity policies and programs for private equity funds to institute within portfolio companies. In contrast, only 7% of investors surveyed are satisfied with the cybersecurity policies of fund managers.
The survey finds that 87% of respondents have portfolio companies that have engaged boards of directors or an equivalent group to help govern cybersecurity policies. In reaction to cyber-attacks, portfolio companies have implemented programs including data protection (67%), internal access management (63%), customer access (62%), incident response and detection (60%), and strategy and governance (60%).
Read the complete survey at ey.com/pesurvey.
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.
EY works together with companies across the CIS and assists them in realizing their business goals. 4,500 professionals work at 20 CIS offices (in Moscow, St. Petersburg, Novosibirsk, Ekaterinburg, Kazan, Krasnodar, Rostov-on-Don, Togliatti, Vladivostok, Yuzhno-Sakhalinsk, Almaty, Astana, Atyrau, Bishkek, Baku, Kyiv, Tashkent, Tbilisi, Yerevan, and Minsk).
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. For more information about our organization, please visit ey.com.
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.
About Private Equity International (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 set of databases dedicated to alternative assets; runs more than 30 conferences globally; publishes a large library of specialist books and directories; and operates a significant training business. PEI is the leading specialist information provider dedicated to alternative assets. For more information, visit ThisIsPEI.com.
About the survey
Disruption: seismic shift in the private equity industry is EY’s third annual global private equity fund and investor survey in collaboration with Private Equity International. Respondents included 103 private equity funds and 88 investors. Private Equity International conducted the research between August and December 2015, collecting information through telephone interviews and an online survey.