The formulas, tricks and trade secrets of Private Equity
Financial Controller Private Equity
My experience is that most investees suffer from a lack of financial discipline. And, with almost every investment my firm has made, we’ve had to somehow improve the financial expertise in each investee. The most obvious in-house alternative to hiring a new financial controller is to monitor the financials and make regular process improvements ourselves (as private equiteers). But, this can quickly become burdensome as the private equity portfolio grows.
A midway solution is to hire a financial controller at the private equity fund level to oversee and improve financial management across the entire portfolio. The advantages of this are manifold:
A single overseer of financial performance can provide the private equity team with consistent data across all investees (same template, same metrics, same formulas, same processes, same assumptions, etc.)
It is much cheaper; hiring a great (opposed to good) financial controller for each and every investee is very expensive at the mid-market level
In many cases, you’re spared firing a good financial manager (in exchange for a great one), who likely has years of experience in the business and is therefore a wealth of investee-specific knowledge
It frees up the investment team from having to deal with minor financial compliance issues
The largest disadvantage of hiring a firm-wide financial controller is that if you hire a dud, they could potentially create issues across your entire portfolio. Other than that, it’s a good idea for firms looking to have more time for strategic value-add. You can even charge the controller’s salary to each of the investees, rather than have him/her erode your management fees. Win, win.
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