A growing dependence on data analysis and a larger pool of highly qualified accountants is encouraging smaller firms to take a risk on less experienced leadership in the finance function.
In our role in finding senior finance professionals for venture capital and private equity funds in London and Europe, a new trend has emerged that has been hard to ignore: firms are hiring finance directors with less experience to lead and develop internal finance functions.
This is mainly the case within firms that have smaller funds, which means it’s skewed towards venture capital, smaller private equity houses and, crucially, new funds that are making their first finance hire.
For many years, larger firms have sought the talents of CFOs or FDs, who have maintained high operational standards amid increasing regulation. So, why are smaller firms opting for less experienced, perhaps riskier, hires for this key operational role?
There are a number of underlying factors that seem to have led to this trend and suggest it’s likely to continue.
Private equity, venture capital and private debt funds increasingly employ and develop new technology internally; an area which quite often falls into the CFO or FD’s remit. With out-sourcing of fund finance and compliance becoming increasingly popular, in-house finance teams are focusing on implementing or upgrading systems. One of the main areas of attention is portfolio management.
Due to the more volatile nature of their investments, venture capital funds tend to opt for high-spec portfolio monitoring systems that provide better clarity on factors like funding and runway for deal teams and investors. These systems collect data that, if properly harnessed, deliver significant efficiencies by automating elements of the reporting process.
As a result, finance professionals who have worked with newer portfolio monitoring systems may be better placed to embrace the potential of data in a private markets context.
Additionally, we have seen an increase in the number of qualified accountants. Those registered with industry bodies (ICAEW, ACCA, etc.) increased by 34% in the ten years to 2009 and 28% in the ten years to 2019, putting the current number of accredited professionals at 366,554. The ‘Big Four’ are also widening their nets to accountancy graduates emerging from a broader range of universities bringing diversity as well as talent to their graduate entry schemes.
This all adds up to a larger pool of highly qualified accounting professionals, many of whom have qualified in the past ten years. This gives first-time funds with tighter budgets a great option to hire a talented candidate earlier in their career who can grow with the firm as it scales.
Conversations I’ve had recently in the market suggest that there’s a real excitement about the potential of new technologies. With change on the horizon for finance functions, taking a chance on a less experienced finance director with a sense of the opportunities that enhanced technologies can bring makes sense, especially if they are less likely to rely on tried and tested strategies.
As is always the case with recruitment trends, there will be exceptions. Many established private markets finance directors will be ahead of the curve when it comes to harnessing the power of portfolio management systems. However, the convergence of first-time funds, powerful technology and a rich talent pool is bringing a new kind of finance director into our market and I am excited to see their careers develop.