The evolving role of the CFO at real estate and private equity houses15 Jan 2016
Over the last number of years, in particular since the global financial crisis, the role of the CFO at real estate and private equity asset management firms has evolved.
The CFO's of today are not only responsible for tactically handling the day-to-day issues regarding crunching the numbers or managing third party service providers. They now have to adopt a far more strategic role in light of emerging trends to ensure the business is structured and able to take advantage of prevailing market opportunities in line with investor requirements.
In recent years, this development has been driven by two primary factors; investor demands and regulation.
Investors are demanding more
It has been well documented by various industry associations that investors continue to be increasingly selective with who they partner with as asset managers look to extend their existing investor base. Investors are now far more rigorous in their due diligence of a particular asset manager, where historically a solid track record of raising capital, generating returns, and distributing those returns to investors on time was the primary focus of a new investor coming on board.
CFOs now have to potentially share with investors information across a variety of areas including; regulatory and operational risk management, social governance, as well as transparency of communication. Investors' are looking for far more robust and tailored reporting outputs and in particular more granular information regarding valuations. In essence, they want a greater understanding of how real estate and private equity firms operate behind the scenes.
Regulation is only going one way
As the wave of international regulation, in particular the Alternative Investment Fund Managers Directive, continues to be felt across the industry, CFOs are now spending more time dealing with regulators and working with their compliance firms and legal counsel to ensure that the business is structured in accordance with local and international regulatory requirements; but also in line with business strategy in order to take advantage of market opportunities.
Coupled with this, the Base Erosion and Profit Shifting (BEPS) project initiated by the OECD and G20, whilst not specifically targeted at the alternative investment community, will certainly have some sort of repercussions for the industry, and it will most likely fall on the CFOs lap to take the lead and provide a practical solution to address it.
As a result, the CFO of today and the future will need to look beyond traditional operations and assume a far more all-encompassing role covering strategic operational and regulatory risks, portfolio monitoring and valuation, and managing investor relations on a far more frequent and transparent basis.