Minimizing Risk for Portfolio Management Companies
Nothing sinks the value of an investment faster than exposure to risk. Risk is inherent in investing, but for private equity (PE) firms, the risks today go well beyond volatile economic cycles. Exposure to risk at PE firms is accelerating.
According to a study of industry experts, there are six top risks that PE firms are currently facing:
- Technology Risk. As technology grows and evolves, technology risk-management practices need to change with it, to measure the PE firm’s risk as well as for its portfolio companies.
- Third-Party Risk. Engaging third-party contractors is common for PE firms, and this can potentially damage the firm’s reputation and investments. Financial regulators are clear that outsourcing work to third parties does not shift responsibility from the PE firm.
- Fraud and Misconduct Risk. Transparency is the key when potential fraud and misconduct issues arise due to working in foreign markets where standards are different, or due to victimization from outsiders.
- Cyber Risk. With nearly every business activity now being digitized, cybersecurity is the shared responsibility of every employee and department. PE firms and their portfolio companies are vulnerable to breaches, data loss and ransomware attacks, just like other businesses. When the next cyberattack comes, investors want to be reassured their organization is sufficiently covered to mitigate damage.
- Compliance Risk. Maintaining regulatory compliance and oversight has never been more complex in PE. The PE business model is no longer driven by performance alone, as it now must balance costs with a duty to ensure a robust compliance infrastructure.
- Crisis Management Risk. The ability to respond quickly to a corporate crisis is paramount to preserving reputation. It’s essential to have a crisis management team ready to respond at any moment.
In many PE firms, the leadership bandwidth, budgets and resources are not aligned to manage the escalating risks of the industry.
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To learn more about Oasis, A Paychex Company, please visit www.OasisAdvantage.com/Private-Equity or call 866-709-9401.