What Makes a Great Private Equity CFO?

While different companies may look for different qualifications in recruiting and hiring a Chief Financial Officer, private equity (PE) firms look for CFOs who can execute their enterprise financial strategy both at the organizational level and throughout its portfolio.  The successful PE CFO drives operating excellence and tempo and drives strategic decisions as the company scales. The private equity CFO will be oriented toward both strategy and operations, serving as a thought partner across various aspects of the business, while implementing the critical systems and replicable processes to drive exceptional returns and ensure operational results.

In PE more than in almost any other industry, the CFO must demonstrate a broad understanding across the gamut of financial disciplines to effectively drive the financial strategy, instill a financial map for operating excellence and support strategic decisions as the company scales. The private equity CFO will therefore be serving as a thought leader at both the portfolio companies level and across functional aspects of the business.

At the portfolio level, the CFO of a PE firm is most especially the link between the portfolio firm and the financial sponsor. For this reason, PE firms (the financial sponsor) will be very influential in the selection of CFOs for their portfolio companies. This participation in talent assessment adds a dimension of complexity to the portfolio company CFOs role.  The selection process will be driven by the underlying investment strategy for the company – if growth is to come largely from mergers and acquisitions, the company will look for a CFO who is experienced in acquiring and integrating companies; if the exit strategies are more frequently for an IPO, then a CFO with public company and/or capital markets will be important.  If the company is later stage in its growth acceleration, than a seasoned operator may be precisely what is needed.

In addition to whatever other skills they bring, a candidate for CFO of a portfolio company (or a sponsoring PE firm) should excel in at least one of the following: 1) technical accounting, 2) operational finance, and 3) capital markets. Those who excel in accounting often begin their careers in public accounting, where they develop strong technical finance and accounting skills while obtaining a CPA. Conversely, those who excel in operational finance will have honed their skills in divisional finance or financial planning and analysis roles. Former bankers also tend to have the requisite expertise  in the capital markets area.

At the portfolio level all three areas of focus are important, but arguably operational finance is the most critical priority for private equity CFO roles.  Capital markets experience is usually a “nice to have” rather than a “must have,” as this is an area where the sponsor can step in to lend a hand – one notable exception of course being pre-IPO situations and the technical capital markets challenges they bring.

In sum, the ideal private equity CFO, both strategic and operational, will serve as a thought leader across various functional and divisional aspects of the business while implementing the systems and processes to help create results across the portfolio. Finding the right candidate will require a strategic approach and the best balance of skills will be a function of both the portfolio company’s and the sponsoring company’s plans and needs. In addition, the ability of a candidate to bridge between portfolio companies and to be a partner to the C-Suite of both is crucial.

An effective recruiting partner will know how to identify the right combination of skill and experience to drive the growth of both companies and will be a long-term partner who will share in your success.

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