The Ever Evolving Role of the Private Equity CFO

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Rarely has the role of a Chief Financial Officer (CFO) been so important. Market volatility, economical uncertainty and global instability combine to mean that many CFOs are facing a series of growing challenges. Last month, the International Monetary Fund said that the UK will escape recession this year, reversing its earlier gloomier predictions – but, at the same time, interest rates continue to rise in the hope of bringing down inflation but risking pushing the economy into a full-blown recession.

Aside from managing economic fluctuations, CFOs are dealing with an array of challenges from:

  • geopolitical tensions that have disrupted supply chains, and increased energy prices and cost of goods
  • increasing focus on environmental, social and governance standards and reporting
  • emerging challenges and opportunities posed by advances in technology, crypto-currencies, automation and artificial intelligence
  • a far tighter funding environment with lower valuations

This myriad of challenges has put increasing pressure on companies and has brought a greater spotlight on CFOs who are, in many ways, now more important to a company’s prosperity than they have ever been. The times where the main priority and focus for the CFO was investor-relations: managing current and future investors in the search for ever larger funding rounds at ever-higher valuations, seem to be firmly behind us. There is now a clear move back to basics: sound financial management, controlling cashflow, streamlining processes and cutting costs. But the modern CFO role combines this with a broader responsibility to help businesses use this time to re-tool and prepare to capitalise on the growth opportunities that will inevitably present themselves when the market turns. The central supporting role of the CFO means that they will have to form an ever-closer bond with their executive peers helping them to restructure and refocus their teams on the prize that lays ahead. These tougher periods in the economic cycle are often when the breakout success stories of the next cycle start to emerge. Winning companies use these times of uncertainty not only to cut costs, but to lay the foundations for rapid growth when the market turns, as it surely will.

The pool of seasoned candidates able to work in this more expansive way is very limited – the market for financial talent is as competitive as ever.

Pressure for a new broader, more progressive CFO is at its most acute in the world of private equity as funds emerge from a long period of low inflation and interest rates which have supported lofty valuations and highly leveraged deals. Now we face a squeeze on debt, volatility in the public markets and concerns about the widening gulf between hoped-for valuations and those achievable in the current market. It’s likely that the funding market for growth companies will remain tight for a while, but there does seem to be some evidence to suggest that the world of Private Equity might be coming back to life. We have noticed an uptick in activity, and a much more positive assessment of the market from our PE contacts in recent weeks.

In such a challenging market, recruiting a CFO who has PE experience, breadth of vision and a proven ability to lead through a downturn is key. I get the strong sense that this isn’t like downturns we have experienced before. Economists have been forecasting a ‘correction’ for years and it feels very much like this will be more short-lived than previous downturns we have experienced. In fact, there is some early evidence that confidence is improving, albeit imperceptibly.  This breadth of experience is particularly important at this time as whilst the current headwinds are strong, it quite possibly will not be long before things improve and companies move back into a more confident and expansive mode, so CFOs need to have the capacity and the experience to manage this transition.

During this testing period, CFOs are also often being tasked with driving improvements in systems to improve resilience and efficiency. This is no small task when a new technology such as AI starts to permeate. Goldman Sachs reported recently that AI will boost productivity over the next decade but will replace a quarter of all work done in the US and the Eurozone and expose the equivalent of 300 million full-time workers in the world’s largest economies to automation.

Where there is financial innovation and disruption, fraud followed by tighter regulation will almost inevitably follow. The FT reported in May that UK losses due to fraud linked to crypto currencies increased more than 40 per cent in a year, topping £300m for the first time.

If businesses are to keep ahead, or even on top, of these issues, finance leaders will have to work extremely closely with their peers whether it is the head of risk, technology, or security. AI poses massive challenges that must be managed, but also opportunities that must be realised. A failure to realise these opportunities will lead to companies losing ground to more innovative competitors.

CFOs must navigate this shifting landscape while simultaneously managing departments undergoing significant transformations. The fact that one in seven employees anticipates changing jobs within the next six months[1] highlights the dynamic nature of today’s workforce, underscoring the need for CFOs to foster agility and talent retention strategies in their organisations.

CFOs must be strategic, forward-thinking, and collaborative, and above all adaptable. It takes time and knowledge of the market to spot the right candidate who not only will keep a business on track during the tough times but help to position it for the future when the outlook is brighter.

I’m optimistic that this is a time when CFOs will further consolidate their position as prime movers in the process of value creation in PE owned companies. The CFOs who successfully steer companies through these challenging times and back into growth are well positioned to develop into CEOs in the future.


[1] Cost of Living Crisis Makes UK Workers Restless for New Jobs – Evening Standard

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