My experience is that most investees suffer from a lack of financial discipline. And, with almost every investment my firm has made, we’ve had to somehow improve the financial expertise in each investee. The most obvious in-house alternative to hiring a new financial controller is to monitor the financials and make regular process improvements ourselves (as private equiteers). But, this can quickly become burdensome as the private equity portfolio grows.
A midway solution is to hire a financial controller at the private equity fund level to oversee and improve financial management across the entire portfolio. The advantages of this are manifold:
The largest disadvantage of hiring a firm-wide financial controller is that if you hire a dud, they could potentially create issues across your entire portfolio. Other than that, it’s a good idea for firms looking to have more time for strategic value-add. You can even charge the controller’s salary to each of the investees, rather than have him/her erode your management fees. Win, win.