PEI CFO COO 2020: Petting Zoos, Private Equity and EWM Global – what’s the connection?

PEI CFO COO 2020: Petting Zoos, Private Equity and EWM Global – what’s the connection?

Written by EWM Global
Written by EWM Global

What do Petting Zoos and Private Equity have in common? According to one CFO at the PEI CFO COO 2020 Forum in NYC last week that brought together over 600 industry professionals, it might be talent management, as he suggested they could be a potential way to attract and retain employees, especially the millennial kind!

While that was shared either in jest, or frustration, or both, the concern is real – PE firms are being forced to acknowledge and address how they are positioned for succession planning, both at the investment team level, as well as at the management company. Investors, including some of the world’s largest pension funds, are making billion dollar bets on which GPs can outlive their founding and best performing talent, while at the same time sun-setting those that will be moving on, to ensure smooth transitions.

The other key themes have remained the same across the last few years:

  • The ever-changing role of the GP CFO
  • Talent Management and Technology remain highest on the minds of GP CFOs surveyed by EY1
  • Diversity & Inclusiveness are no longer nice-to-haves – investors and performance demand it
  • Concerns about whether GPs and Investors are fully protecting themselves for the eventual market correction

Our Chief Marketing Officer, Tom Pittman, led an interactive, standing-room only working group at the Forum outlining our experience with carry plan structures and waterfall sequences, and some of the best, and sometimes unique, practices we have observed, such as charitable contributions of carry at the GP level to answer the activist call of their changing demographic.

Tom Pittman leading Working Group C: "Waterfall Calculations & Carried Interest Allocations"

When it comes to succession planning, some of the key considerations CFOs and COOs have to contemplate are:

  • How best to structure Founder carry – perhaps on a sliding scale, but for how long
  • Providing fee and carry-free avenues for Founders to be able to continue investing capital
  • Providing tails on carry
  • Funding capital calls with pre-tax dollars
  • Planning for potential clawbacks

However it’s not as simple as switching point allocations from the old to the new, as most GPs have grown exponentially in terms of AUM and headcount – and the challenge is how to adequately incentivize and reward everyone, without diluting the interests of the most critical team members.

That’s where phantom carry is an attractive addition to the compensation strategy, though it does come with some additional nuances, including that it needs to be paid via payroll, how will the phantom carry pool be determined, whether there is a way to utilize pre-tax dollars to contribute to the pool, and how will it all be tracked, including termination considerations for forfeitures or accelerations of vesting.

With all of this, spreadsheets have met their match – there are too many scenarios and too many data points for a lean finance team to be managing.

The majority of the firms we are speaking with have the ability NOW to transition to a digital alternative – one that provides clear audit trails and transparency to finance teams, GP management and carry recipients.

On the flip-side, we have been in discussions with GPs, who in the midst of the discovery process with us, lose the one key person that knows everything there is to know about their internal spreadsheet, and all the comments, formulae, adjustments, etc. found across the multiple tabs. The one common comment they had shared prior to that person’s departure:

“we’re good for now because our process works”…

What most GPs may fail to appreciate is that migrating from internal spreadsheets to a secure, cloud-based, database driven system will require them to dig into and clean up their existing data. As one CFO put it, “the most significant challenge in migrating [from spreadsheets to a digital environment] was going through all the historical transactions maintained in different Excel-based files… By having to explain the data to third parties, it forced [them] to more carefully explain the way certain transactions were treated… ”2

EWM Global is leading the digital revolution of the carry plan experience for GPs and carry recipients alike, directly addressing the call to action from another CFO at the Forum – “it is critical that GPs provide some way for the employees to understand what they have earned and how it works”.

EWM Global’s clients already have 24/7 online and mobile access to all their carry points, vesting, values and detailed transaction history – are you ready to digitally transform your carry experience? Contact us at