Slide 1 - The ILS Funds

advertisement
Adding Value as a PE COO
•
Calling on COO colleagues in Boston and New York, I mapped the typical COO duties, the areas
where some COO’s are adding value to the portfolio, and some possible areas for future COO
contributions.
•
At least in the US, the COO’s role is defined to complement the interests and abilities of other
team members (more so than the CFO). Even so, the COO role has a typical core of internally
focused tasks. There are also some outward facing functions that are allocated to either the
CFO or COO. Some “best of breed” firms have COO’s with portfolio enhancing functions. (E.g.,
Blackstone, Riverside.)
•
Most of the COO’s future is in creating ways to add value to the firm and the portfolio, and the
frontier is using risk management to enhance returns rather than limit opportunities.
•
Partnering solutions have come and gone, and now come again, with more aggressive and
better product offerings. Robertson Stephens was the partner of choice for stock distributions.
Citizens Bank has a decade-long history of wrap solutions for PE banking needs, and Wells
Fargo is currently considering a PE product wrapping cash management, short term financing
and industry expert insurance brokerage, all with portfolio level discounts.
Inward facing, administrative duties
In firms that have a COO, the core duties relate to the administration of the business.
Some of the duties address facilities and IT, some cross between COO and CFO. A third
set emerges only if the firm pushes for excellence in its internal operations.
Facilities / Shared With
IT
CFO
x
x
x
x
x
x
x
x
x
x
x
x
x
x
Emerging
Best
Practices
x
x
x
x
x
x
infrastrucure - office space, equipment
IT and enterprise systems - standards, strategy and best prices
telephony and email solutions
disaster recovery
insurance program (property casualty and benefits)
LP communications
administrative systems (e.g., TNR, Investran, et al.)
fund raising process
benchmarking compensation
bank lines (e.g., bridging from funding to calls)
FX (transactional and risk management)
annual portfolio planning and returns budget
management company plans and budgets
weekly fund level flash reports
digitizing workflow (BPEL implementation)
benchmarking operations headcounts
benchmarking operational effectiveness
returns attribution in compensation
orchestrating valuations process and documentation
IT and enterprise systems moving specific applications to the cloud
Adding Value to the Portfolio
Increasingly, VC and PE firms are actively managing portfolio companies. The process
seems to ramp through four areas – metrics and monitoring, purchasing programs, cash
management, and then active consulting as an extension of management. The COO can
participate as a diagnostician, helping with staffing logistics, as part of a consulting
team, et al.. The COO’s role becomes a reflection of abilities and bandwidth more than
job title.
Common
Occasional
x
x
x
x
x
Unusual
x
x
x
x
x
x
x
portfolio planning - KSF's and valuation metrics
portfolio planning - automated reporting linked to dashboards
purchasing programs - insurance
purchasing programs - office equipment
purchasing programs - lease financing
purchasing programs - shared cloud
purchasing programs - shared banking
cash management facility
venture partners focused on developing opportunities
venture partners focused on portfolio operations
recurring consulting relationships
retainer consulting relationships
New Areas and Leading Edge
Creative COO’s are moving fund administration into the best practices established for
other services companies.
Internal
x
x
x
x
Portfolio
Co's
LP's
x
x
x
x
x
x
x
x
x
x
x
x
x
x
x
connectivity breakthroughs for the technology backbone
digitizing processes
social networking in the workplace
BPO studies, pricing and facilities
portfolio company roundtables - CEO's on macro market and planning
portfolio company roundtables - CFO's on best practices
comprehensive productivity enhancement ("GTD" administrator)
pooled cash management facility
returns database with valuation transparency and drill down capability
mezzanine debt conduits
co-investing with parallel public funds
A swirl of other issues
Several large scale issues are affecting the operations of private investment firms, and
will continue to challenge industry COO’s. Some are listed below.
•
New analyst and associate hiring is down sharply, and the changing staffing profile is forcing process
changes at all funds. In general, deal teams are more tightly focused on making investments and exits,
and non-deal professionals are working other aspects of portfolio development.
•
When you can’t exit and valuation multiples don’t increase, you have to get gains from better operations.
The pressure for improved margins has many effects, and one is faster development of internal
consulting teams.
•
Increasingly sophisticated outsourcing alternatives can change the COO into to a coordinator of third
party providers. The re-configured role emphasizes negotiation and confrontation over analysis, and
limits the COO’s use in portfolio company work.
•
Fund CFO’s and COO’s are willing to share information, but not rewarded for doing so. The previous
slides are based on conversations with a handful of well-connected COO’s, but not supported by a
statistically valid sample.
Appendix –
Duties commonly delegated by the General Partners. The COO job starts by facing inward :
A long list, but quickly becomes routine……
Operations side of investor communications
Review, grammar and fact check all investor information
Create and maintain investor information center (Sharepoint, other)
Review and assemble financial statements into investor communication
Production and distribution of online and hard copy
Treasury and banking
Review and verify controls over cash and securities (one in finance, one deal partner)
3rd party custody of physical securities (lock box with auditable log)
Credit line for funding between capital calls
Drive account structures and payment systems to the lowest total net cost for payments, funding, FX, wires, other
Cash flow optimization – mechanics of cash collection and disbursements
Compliance function
Training (welcome to confidentiality and capital market regulations…)
Monitoring (brokerage account copies, et al.)
Reporting (quarterly internal and/or external)
Fund raising process
Administrative systems / prospect tracking
Document the track record and establish the documents room
Structuring to market terms and tax optimization
Know Your Customer process
Coordinate with counsel to orchestrate [rolling?] closes
Subscription review and documentation
Kick off meeting?
First call and surrounding investor communications
Investment process
New deal and follow on processes - define it, document it, write it into the DNA of the organization. Checklists for commitments,
checklists for funding.
Guidelines to pre-empt conflict issues between funds
Guidelines to pre-empt conflict issues between parallel equity and debt funds, and shared services operations
Role of advisory committee in emerging issues and handling exceptions
Operating policies and procedures
Facilities manager functions
HR
Legal
IT
Download
Related flashcards

Investment

31 cards

Investment

58 cards

Investment companies

42 cards

Lehman Brothers

18 cards

Create Flashcards