Ideas, changes, and external economic conditions have created an unpredictable labor market that CFOs have already begun strategizing around. As layoffs continue to bulldoze their way through technology companies to start off 2023, managing existing payroll, hiring costs, and budget cuts are becoming a balancing act. After one-third of CFOs said in September 2022 they would cut staff due to economic conditions in 2023, many companies in all sectors of finance will be forced to reduce headcounts if the economy slows substantially and access to capital dries up.
Many CFOs within private equity (PE), a highly competitive industry that has seen its assets under management (AUM) more than double in a decade to $4.4 trillion in 2022, are looking at labor from a retainment perspective. Recent data from EY based on a survey of financial leaders of 112 PE firms globally reveals the larger a firm is, the more likely its finance team is focused on retaining talent: up to 76% of financial leaders from large PE firms (those with over $15 billion AUM) said retaining talent is needed to remain competitive.
As data suggests, the larger companies are sweeping up the best talent and then doing what they can to retain it. The data found smaller firms may be falling behind, focusing more on hiring and less on retainment. Retention of talent as a top competitive need dropped with CFOs of smaller PE firms (less than $2.5 billion AUM), 54% of whom said it was their top need.
Focus on Cost Management and Technology
CFOs from other sectors of the economy are heavily focused on adding different types of technology to their tech stacks. CFOs of PE firms, regardless of size, don’t seem to feel the same way, according to EY data. Only a fifth (20%) of CFOs from smaller PE firms said technology transformation was a top strategic priority aside from asset growth. About one-fourth (26%) CFOs of the largest firms surveyed said technology transformation was a focus in the same regard.
Unlike the more than half of CFOs in many other industries last month who chose optimizing costs as being of great concern, PE CFOs at firms of all sizes placed cost management near the bottom of the list of strategic priorities. Second to last in overall response rate to transaction readiness, cost management among PE CFOs barely peaked at a third (31%) for CFOs of smaller firms. That number fell below a fifth for midsize ($2.5 billion - $15 billion AUM) and large firms (14% and 18%, respectively).
Nearly All PE Firms Are RTO
Despite the competitive focus on talent management, PE CFOs in the U.S. nearly unanimously agreed (99%) that a fully remote atmosphere is not leadership's target for their companies' work environments. The majority of CFOs (59%) said that they would prefer their teams to return to the office (RTO).
The largest companies, those prioritizing talent retention, had the highest rate of recognition of discrepancies between executives and workforces about RTO policies. Over half (56%) of CFOs from the largest firms told EY their employees want fewer days in the office than their leadership’s targets on RTO.
Midsize firms saw slightly less than half (46%) of finance executives report the same, while at smaller firms only 26% reported the same discrepancies between the views of executives and employees. With the smallest firms being the most flexible from a work environment perspective, the idea of flexible work will continue to be a strategic element in the competition that arises from limited talent pools.