Private equity firms are typically organized into an investment team and some sort of support team. Simply put, the investment team is in charge of effectively allocating the firm’s capital to achieve superior returns, and the support team is in charge of everything else. These roles can vary in size and scope but tend to include legal and regulatory compliance, raising new investor funds and managing firm reputation, managing recruitment efforts, and all of the administrative tasks of the firm.
Chief Financial Officer
The Chief Financial Officer holds one of the most important roles in the private equity firm and is ultimately in charge of raising capital for the investment team to allocate. A recent report by EY on the importance of the CFO in a Private Equity highlights some key reasons why the CFO is so important to a private equity firm:
- “92% of investors think it’s important or very important to meet their PE finance teams”
- “Three-quarters of investors want tax reporting within four months after year-end, although only 31% are currently receiving reports at this rate”
Chief Financial Officers are in an expanding role that is growingly focused on investor relations and portfolio analytics. The CFO is communicating the firm’s performance to its investors who are the ultimate reason for the private equity firm’s existence. A strong, experienced CFO is able to keep investor’s expectations in check both when the firm is over-performing and under-performing.
Chief Operating Officer
The Chief Operating Officer is another important role in the private equity firm. This role is sometimes combined with the CFO role in smaller firms. The COO is responsible for the overall strategic and day-to-day operations of the firm. The COO is commonly in charge of making sure that the investment team has the right resources in order to operate efficiently. Most of the time, this means effectively managing a budget to make sure that the private equity firm is using every dollar of capital effectively. Remember, every dollar that is spent by the COO for the operations of the actual private equity firm is a dollar that cannot be invested.
Compliance and Legal Officers
The Dodd-Frank Wall Street Reform and Consumer Protection Act made it so that private equity firms are now regulated by the SEC. This means increased regulatory oversight, increased regulatory requirements, and increased regulatory demands from investors. As a result, many firms were required to hire Chief Compliance Officers to manage these new regulations. The CCO is basically in charge of managing any regulatory issues that may arise for the company. The CCO works closely with the company’s legal counsel to manage and understand new regulatory hurdles and to ensure that the firm is in compliance with the new Dodd-Frank regulations.
Operating Partners fall somewhere in between the investment team and the support team. Operating Partners generally work closely with the management teams of portfolio companies to help them achieve the operational goals and strategies that were crafted by the investment team at the time of investment. These initiatives can range from growth initiatives to cost initiatives. Operating Partners have generally spent much of their career in the industries that they are advising before moving to private equity. Some firms have entire teams dedicated to operating initiatives depending on its size and investment strategy.
Many of the roles mentioned below are very rare. If they exist, they typically exist in very large firms that have multiple investment strategies and many employees. The only exception are Executive Assistants, which are a very important part of every firm, no matter the size.
- Executive Assistant – Manage the schedules for the senior level people of the firm. Can often be crucial to helping the firm stay on track and meeting its goals.
- Treasurer – In charge of financial planning and budgeting by working closely with the CFO.
- Vice President of Marketing – In charge of maintaining the firm’s reputation. Reputation is important for both raising new capital and recruiting the best talent to the firm.
- Director of Technology – Responsible for all of the IT needs of the company. Generally falls under the umbrella of the COO.
- Controller – Responsible for the firm’s accounting needs.