Private equity executives face increased scrutiny from investors and regulators – a scenario that could lead to more job opportunities for finance and accounting professionals in the sector, a new survey shows.
Ninety-three percent of private equity executives participating in EisnerAmper LLP’s “The Pulse of Private Equity” survey for the first half of 2012 said their limited partners have moderate to high interest in due diligence related to fund managers. That’s the highest percentage since 2009, when the report was launched.
New highs in interest from limited partners also were reported in the areas of management and incentive fees and other expenses (88%), other fund terms such as lockups and commitments (84%) and the fair value investment process (80%).
Increased scrutiny on investments – be it from investors or regulators – could bode well for finance professionals, including accountants.
In this environment, 37% of the 113 private equity executives who took part in the survey said they plan to increase their staff in the first half of 2012. Just 7% plan to reduce their staff; 56% said their staff will remain the same.
Half the respondents said they plan to hire financial professionals in 2012. Just 26% said they plan to hire compliance staff, but Peter Cogan, CPA, an EisnerAmper partner and co-author of the report, predicted that new regulations will lead to more opportunities in this area, too.
Dodd-Frank Wall Street Reform and Consumer Protection Act rules requiring advisers to hedge funds and private equity funds to register with the SEC took effect at the end of March.
“We’re going to see a push into much more compliance, trying to deal with some of the additional filings that the firms have to do,” Cogan said. “I’ll be interested to see if there’s a move to outsourcing some of that process. I think on the hedge side, the hedge fund managers are very used to outsourcing a lot of their back office work. It will be interesting to see if private equity follows suit.”
Cogan said fundraising has slowed in the past couple of years because of the financial crisis, before which fund managers and general partners were extremely successful at raising capital.
“When the capital pulls back and people are more cautious, then the [limited partners] tend to have an advantage,” Cogan said. “I think right now we’re in the middle of that dynamic where the [limited partners] seem to be in the driver’s seat. If they have capital to allocate, the [general partners] have to offer better dealings to the [limited partners] than they have… in the past.”
About 89% of executives surveyed predicted an increase in closings for acquisitions in the first half of 2012. Past surveys have shown similar optimism that hasn’t always come to fruition, but Cogan said he is seeing a lot of M&A exit transactions and distributions from funds to limited partners. He said that when general partners start talking about more opportunities, limited partners will be more receptive than they were coming out of the crisis period of 2008 and 2009.
“We’ve seen spikes in some of our funds of funds where performance is improving, private equity fund of funds in particular,” he said. “So that tends to mean that there is some increase in valuation in the marketplace. And if it results in cash flow activity out to the LPs, then it becomes much more receptive to inflows back into the marketplace for new funds.”
—Ken Tysiac (ktysiac@aicpa.org) is a CGMA Magazine senior editor.