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There’s private capital technology consulting. There’s private capital fractional CFOs. There’s private capital operations consulting. There is private capital funds administration. But is anybody really knitting it together into a single coherent package that anticipates what’s coming next for the private capital industry’s very considerable operations blind spot?
We won’t speak for our guest, but Gale Strategies will go on the record saying that the “front office” of private capital – for all their purported understanding of how technology rips up and transforms the playbook for every other industry – is missing the boat on their own industry (please pardon the mixed metaphors). But there are exceptions, and those exceptions are the ones to watch. We’re talking about front offices that get it and who see the CFO/operations leader in the correct light in view of every other industry. And a consulting firm to watch in that context is LewisLevy who are defining the seem between more traditional consulting for private capital that represents the opening way forward.
Chris Gale 00:02
As I think many attendees know, but there are probably folks that don’t know, The Definers webcast and podcast series on Spotify focuses on folks who are defining their marketplace, either in the process of defining it, or having successfully defined the marketplace and are leading where it’s headed. LouisLevy Consulting is a relatively new venture, though it’s a relatively new venture doing something that you’ve spent a career focusing on developing. Can you update us on what you’re doing and the service that you’re offering?
Kwame Lewis 00:44
Thanks, Chris. Thanks for having me here. LouisLevy Consulting is the brilliant child of myself and my partner, O’Neil Levy. We are former PwC auditors. Actually, O’Neil was my manager. That’s very exciting. Anything that I know is because of him, or don’t know, haha. We both were in the industry. I was a CFO at ACORN Investments. He was a finance director at Bain Capital. And then we ended up finding ourselves at TMF Group doing CFO services. Chris has heard this tagline from me. While at TMF, we did another podcast called having the CFOs be their best selves. That’s what we’re here to do. We’re here to help, especially fund CFOs be their best selves. There’s a lot of consulting out there for corporate consulting for companies and that type of thing. But there’s not been a focus, at least in my estimation, on the funds and the funds CFO, the fund complexes, and so on. There are folks out there that do it. But you know, what I want to do is come up with this new name, this new focus, called funds consulting, focused on fund managers, their back offices, their operations, making sure they have the same strategy and vision work and processes and procedures that many of the other companies have.
It’s focused on the managers, because, again, managers have a very short, I call it life span, compared to some other companies, right? If you think about it, the fund managers that are out there in front of the private equity and VC space have only been out there for maybe 50 to 60 years. They haven’t been out there for hundreds of years, compared to companies and so on. They’re still trying to find themselves. There are lots of things going on, too, including outsourcing and co-sourcing and technology. There’s lots of different things that are out there. Trying to figure out the minutia, figure out what’s going on out there, is a lot. CFOs have their day jobs. They still have to run their finance teams, run their operations, keep the GPs happy, keep investors happy. Having a firm like LewisLevy to come in and provide that short-term help and expertise is something where I think there is a need in the market. It was a great 2024. We’re already up to 12 clients and growing, and I’m very excited to continue to see what this need in the market could present. What are those 12 clients asking you to do that they can’t? You and I both know that many tech consultancies could help.
Chris Gale 03:45
Private capital identifying tech and integrating and implementing it. There are fractional CFO services. There are fund administrators. Tell me more about this category you’re defining – fund consulting. What is it that these 12 clients are really looking for?
Kwame Lewis 04:04
That’s a great question. This is how we break up our firm. I call it the three pillars of LewisLevy. The first one is that fractional CFO. Think of folks that don’t have a CFO. You know, newer funds, emerging funds maybe on fund one, fund two, and they can’t afford, or don’t want to afford, to bring a CFO in-house. They come to us to help them to stand up their finance functions and offer them advice. You know, O’Neil and I have more than 40 years of experience between us in the industry – answering questions, answering technical questions, working with auditors and fund administrators, etc. Just being the CFO for those clients. That’s half of our clients.
The other half is this, the pure play: funds consulting, whereby we come in on a short-term basis and do whatever the client wants. One project we’re doing is financial statement prep. I did a technical accounting memo this year that was cool, bringing back my PwC days. We helped one client switch fund administrators, which is a thing, by the way, guys. Folks have not thought about that. There’s a lot that goes into that. Any type of switch, switch of fund administrators, switch to technology causes risks. There are technology folks out there, technology consulting, but just the daily like actual consultant moving things around, doing reconciliations, etc. is challenging We help clients with that. That’s the second pillar.
The third is called a staff augmentation. If somebody leaves, or somebody goes out on maternity or you need someone to come in and do some short-term projects and stand up what’s happening at the fund, we could come in and do that. I say this, especially to all my fund administrator friends: we don’t do fund administration. We live with the fund administrators, complimenting them, helping them be better. You know that some of their clients may say they’re not getting what they need from their fund administrator. Usually, the reason for that is they just need a CFO. They need someone to pay attention to the fund administrator and the client, translating what needs to happen to make that relationship go more smoothly. Same thing with the auditors. We do audit prep. We do tax prep again. We don’t do the tax filing, but there are a lot of things that need to get done for the audit and for tax that we will be able to help facilitate. We stand in the gap. We try to help our clients just get things done and try to be quick and nimble about it as well. Literally anything that you can think of to help folks do or be successful, we will do.
Chris Gale 06:58
It strikes me that’s a diverse set of services, rather than partnering with a consultancy that focuses on a subset of those, is there a common thread that you’re finding runs through them?
Kwame Lewis 07:17
Yeah, funds. Other consultants, like in the Big Four, or other consultants you see out there, will have more generalist approaches. We have chosen this niche of being a funds consultant. Because of our backgrounds, because we’ve sat in the seats of CFOs and controllers and so on, we could help make things happen a little bit more quickly, speak the language, that type of thing.
We also love the emerging managers. Few firms out there do that, help emerging managers get up and running. But if you want to start a fund, like Kim Kardashian – by the way, she started a fund – the first person they should be going to for a lot of people is going to their lawyers or their bankers or fund admin. Really they should come to a funds consultant/fractional CFO for funds because we could help shepherd and tell you what you need to do, walk you through some of the terms, and the LPA and different things like that. You really can come look for us to get your fund off of the ground. That’s emerging managers and established managers, helping them with strategy, and thinking through just how they want to grow their firm. They’re going to raise another fund. Should they outsource that? Should they should they bring in technology? Should they co-source? There are a lot of different things that need to be thought about. We could help them think about it and document it. That’s the other thing. With our audit backgrounds, we’re really, we really focusing on documentation, and a lot of people don’t. They just don’t have the time, etc. We get to come in and help do that for them.
Chris Gale 09:03
Tell me more about that documentation, because I think I have a sense of where that might be headed.
Kwame Lewis 09:11
There are two things I compare it to. First, a lot of the audience may know that there’s a second thing called SOC twos, or SSAE 16s, that fund administrators do. Basically, they document and test the operating effectiveness. They call it the controls of an organization. Generally, fund managers don’t do that. They don’t need to do that, but what they do need to do is to document what happens. Because guess what? People move on. People switch around, especially in this environment. Folks are changing jobs and doing different things like that. You know that documentation remains and stays with the firm. Once that person leaves or whatnot, you want to be able to figure out what they were doing. The other thing it does, with the SEC coming in and looking at your processing procedures, folks have compliance procedures but having an accounting policy manual lets them know that you’re a mature firm. You thought about your documentation. You thought about your policies and procedures. You’ve documented it. It just helps these exams go much smoother compared to having to cobble it together and scramble when they get in. Documentation is very key for this industry. Because of time and resources, however, people have their day jobs, and they focus on getting that done, which is important and true, but to find that time to be strategic and to do that documentation, that’s where we could be helpful.
Chris Gale 10:58
What goes wrong when you don’t do documentation?
Kwame Lewis 11:15
Lots of things go wrong when you’re not doing documentation right. Things get missed. You have errors. Once someone is not around, or anything happens, all of a sudden the folks who remain have to pick up and do it. That’s where we come in, offering short-term resources. You may not be able to hire another person on the next day, but you could bring in LewisLevy to stand in the gap. It puts pressure on resources when you have to figure out and explain and train folks to do stuff when someone moves or changes and so on. If you have that documented, if you already have that there, then you know that’s helpful. There’s a checklist, a control element to make sure that the same things happen across your funds, right? Lots of people have two to five funds. They have co-investing entities. They have SPVs, a lot of different things happening. Having that documentation, that checklist, to make sure that things happen in a standardized way reduces errors, reduces strain on resources, that type of thing.
Chris Gale 12:36
From what I’m hearing, conversations can start with any number of pain points. I need help with this, I need help with that. I need help with an emergent thing. It’s an acute thing. I want to solve this. Knowing past conversations between you and me, there’s a difference between hustling and getting stuff done and then documenting how it got done so that it can be done better and better. Maybe you want to establish the preconditions for things like automation or software or data organization. I’ve been involved in many things where a manual or an SOP has been set up to the point where it’s super comprehensive, and so much so that people like me are like, ‘Oh, I don’t want to read it. I just want to, you know, just show me how to do it so I can do it.’ How do you both document effectively and then facilitate that documentation being used and becoming a living thing rather than something that goes on the shelf?
Kwame Lewis 14:00
That’s a great question. The answer is technology, right? Like everything else. There is technology out there that brings it to life. I think you’ve spoken with them. Exchangelodge is software that we partner with. We do all the documentation with Exchangelodge. It’s what I call an audit program. There’s a workflow component to process, a documentation component so when you put it in there once, it’s repeatable. You could say in these five steps, Sally would do step one; Joe would do step two. It’s all alive within the software, this dashboarding, which everybody’s very excited about. Because you just want to look on your phone or on your laptop at any given time to see where everything is. You don’t have to call someone and say, ‘Oh, where are my financial statements.’ You could go in there and see the status of everything. You have your processes in there. You have that checklist effect where you make sure it’s standardized and repeatable. There’s a repository of information in there as well. You can put in documents. There are audit trails in there to see who did what, when, and who changed what. It is cool and exciting. Exchangelodge brings this new, exciting feel to documentation, especially within funds. This particular software is focused on funds, private capital, that type of thing. It’s really cool and exciting.
Chris Gale 15:54
Are there particular experiences that led you to decide to focus on this? I’m focusing on this documentation idea because, in our work, you’re describing a thing that a lot of our clients have become super focused on. We serve clients in the health tech and biopharma space where we have seen demand from, let’s say drug companies, shift from ‘Can you help me find discoveries?’ to ‘I can’t find enough pathologists, and I don’t want to burn out the people I have, but I need to figure out how to get more work done.’ We need to solve these workflows. There is this focus on workflows – not even necessarily individual productivity, but the productivity of the team as a whole, and how each individual works with themselves. What I’m interested in is, in private capital or in the fund space, are there triggers that, if I put you on the spot, are there particular triggers that highlighted for you that not enough people are doing this? It’s creating a problem if they don’t, or rather, people can succeed if they focus on this.
Kwame Lewis 17:44
There are two – I call them two stories. I’m a storyteller. One story is, again, back in my time at ACON Investments, we had a contractor there and the contractor outstayed me. I left. He just did everything that I wanted, which was fantastic. I had my staff, and then I had this contractor that did all these wonderful special projects whereby, because there are things that pile up on folks’ desks, there are things for this guy, and he would do them. He did implementations. He did anything you wanted done. He would do it. I try to emulate him, or at least have LewisLevy emulate him, to be that solution, folks’ short-term solution. It’s a series of short-term projects that have kept him busy for 10 years. That was one. The second thing we did was purely by happenstance. We had a summer intern reach out to us. Just, randomly, she did an internal audit. I was like, “Yay, great.” I took her, and we literally did interviews with all of my staff and docs, came up with this documentation, and did this whole procedure manual.
This is something that obviously we’re focusing on in funds, but this is for every industry, including healthcare, pharmaceuticals, etcetera – having that person to document everything, see where and what your current state is. Another thing you hear a lot about Chris is transformation. Everybody’s about transformation. Transformation, transformation. But can you transform something you don’t know? What are you transforming from? What are you transforming to? Taking that stock – it’s another PwC term, they call it taking stock probably, like, 20 years ago – taking stock of what you have, seeing what the current state is, documenting what is happening today. In that document, you already start to see there may be holes, there be maybe areas of improvement that you want to plug in. It gives you that pathway and direction to say, “Okay, now I know what my areas of improvement are. What could fix it? Is it more people? Is it technology? Is it AI? I know everybody’s excited about AI, but what are we trying to fix today? That’s where that documentation, taking that time to take stock of where you are today, will help lead you into tomorrow.
Chris Gale 20:29
I’m going to reveal ignorance on my part because we serve a lot of tech companies. We serve GPs. We do serve some professional services firms, but I don’t have that much experience serving consulting firms. Is that documentation process that you’re describing typical of the consulting process? Or is that something that you’re focused on, or maybe something you’re importing into the fund space?
Kwame Lewis 21:02
Within consulting, the pure play consulting term is called the “target operating model.” What they’re trying to see is what the model is today, and then, based on preset terms and conditions, what we want the target operating model to be tomorrow. That’s something that consulting firms focus on, I think. It’s our background of being auditors. My partner, Neil – we had a meeting this morning – and he’s a big believer in documenting even the meetings, like having agendas ready and having the things written down. It’s really cool. It just solidifies your thoughts. It helps prepare you for that meeting. That’s how we try to approach it at Lewis Levy, to try to document as much as we can. We don’t want to be there forever, by the way. That’s the nature of consultancy. We’re not going to be the CFO for 10 years. We’ll be there for a year or two. But, when we leave, we want to have that legacy that continues to propel our clients forward.
Chris Gale 22:26
You’re bringing in elements of a sort of consulting model that really hasn’t been deployed in the fund space, it sounds like. Maybe there are people familiar with it, but no one’s drilling down on it in the way you are.
Kwame Lewis 22:46
It’s not that everybody doesn’t do it. What I’ve noticed is, the top 10 to 15 firms would have something in-house to do it. Or they may reach out to the auditors or reach out to the big four, and so on. Who would say no, right? Because if you know Carlisle is calling you to do something, you find people, and you do it, right? But being able to have that particular expertise, especially for the middle-market managers – the vast majority of managers out there are middle-market – the next level will be emerging managers. They need help with documentation for the established managers, documenting their processes. They just need someone to provide that expertise to help them think through as they do that fund launch to make it easier. Usually, what ends up happening, especially with emerging managers, it’s just a GP take. I call it the short straw man, right? They draw the short straws, and someone has to go look at fund administrators and treasury and lawyers. You know that’s not what they want to do. They want to be out there doing deals. We help that. We help take the operational burden off of them and help them there. People do it. But again, the focus is more on the day job, getting things to happen, making things happen.
Chris Gale 24:13
If I understand you correctly, firms, when they reach a certain scale, have to do it because, if they don’t, they aren’t going to stay at that scale very long, or they are going to plateau, right? What are the advantages of doing it sooner? I’m asking a theoretical question. In your experience, if you think about firms that have integrated a documentation approach to their processes earlier, what have you seen in terms of how that allows them to grow and progress differently?
Kwame Lewis 25:04
Basically, this is how you know private equity and venture capital firms work. They raise funds. They raise fund one, fund two, from three, and fund four. As you raise more and more funds, there are different nuances to the funds, right? There may be co-investments that go along with it, or there may be a different structure – AIB, or they may have parallel funds, or they may have different investors – so there are a lot of things that go on and happen. And so, to remember all those things, to remember the simple things like “Why did we do this in fund one versus fund two, and now we’re going to raise fund three?” How are we going to do it? What are we going to do? In this case, that documentation helps with the strategy? The strategy of building your firm from fund one to fund 10 is totally different as you go along. Trying to document and remember all the things that happen as you go along is almost impossible. Really. It’s almost like every fund is its own little new company. You have to remember all the nuances. Then other people use different strategies, right? You have a private equity fund versus a credit fund versus a real estate fund versus, you know, something else, right? Trying to remember all these strategies, all these nuances in your head, and having them not documented anywhere, it’s crazy to think that somebody could do that. That’s why I’m spending that time and understanding documenting what’s there so that it stays within the firm. Even if personnel changes or people get promoted or move on to other things, you know that that documentation is there forever.
Chris Gale 26:40
I’m inferring from what you’re saying that, if a process was working, you probably practice it internally at LewisLevy as well. Is documentation a one-time thing, or is it an ongoing process? I’m re-asking a previous question, but I’m fascinated by this ongoing documentation process.
Kwame Lewis 27:20
It’s like anything else, always evolving. That’s why having software, trying to do it in software, versus doing it in Word or Excel, is very powerful. You can see that evolution in front of you. For example, you have a fund one and they had, you know, 10 investors doing one set of things. You go to fund two. You would think, “Okay, well, all my processes should be exactly the same for fund two. Oh, but wait. Now we have foreign investors.” So, you can see in front of you how things more often change and evolve. Doing it in technology helps do that and helps keep everyone on the same page. The other thing with errors, Chris, is that maybe someone didn’t see something somewhere because it’s in somebody’s email. This helps everybody play from the same score sheet and keep everyone together and keep everything in one place.
Chris Gale 28:18
We’re out of time. If you’re open to it, I’d like to have a follow-up conversation. I know people that we do work with would like to hear more about this. This is called The Definers, and it would be really interesting if someone could see the client list because what you’re describing seems to be an exceptionally hard skill for any organization to have. We’re about to have an off-site on Wednesday here at Gale Strategies, where we’re going to be trying to work out processes so we can continue to scale. It does seem to be a topic of the moment for what we’re seeing in our marketing world in multiple industries. You’re a friend of the firm. I would be willing to bet that if we were to look at those 12 clients and the ones that are long-term clients for you, it’d be really interesting to see what their trajectory is compared to other firms in that life cycle.
Thank you, everybody. We really appreciate it. Stay tuned. We’ll have more. Thank you so much. Kwame.
Kwame Lewis 29:39
Thank you for having me.
Businesses need systems of record. Only when we have systems of record can we have systems of intelligence. And business leaders who develop systems of intelligence within their organizations will define the next frontier in their sector.
Let’s look at financial crime.
Systems of record at a bank or fund services firm can allow teams to learn about and then store info on a particular financial scam or scheme. When a bad actor attempts to repeat that scheme, the system of record recognizes it from its databank and can tell systems or people to shut down that bad actor.
But financial criminals know how banks and other institutions work. They are constantly changing their methods and schemes. It’s not enough for bankers or fund administrators to defend against the same types of crime. They must look for the same repeating patterns in their data. They need to defend against the crimes of the future. These crimes may look nothing like previous digital heists or fraudulent transactions.
This foresight requires a system of intelligence. AI tools should power it. These tools can run perpetual analyses on incoming data. They identify known dangers and flag suspicious “unknown unknowns.” These may indicate criminal activity. This kind of smart system helps bankers or other business leaders make breakthroughs. They do this based on the data that’s been collected. They provide foresight for what might come next using probabilities based on the system of record.
Systems of intelligence – a term coined by author Geoffrey Moore in 2017 – look deeper into transactional data to uncover the most well-hidden risks lurking within an organization. The feedback loop of finding new crimes then helps create new rules, keeping pace with the criminals while maintaining an expanding archive of their schemes.
It’s never been more important for financial firms to show they are serious about financial crime. The cost of financial crime compliance in the United States was predicted to hit almost $46 billion in 2022, up from more than $26 billion in 2019. Global financial crime costs banks north of $2 trillion annually.
Finance and investing firms need systems that are agile enough to confront the compliance challenges of tomorrow and take on the ever-expanding amount of work involved in financial crime and transaction monitoring. Only AI-powered solutions at this stage can deliver this level of efficiency and security.
As the Wall Street Journal’s Richard Vanderford reported, customers and regulations increasingly expect banks, funds, and others to deploy financial-crime-detecting AI systems. There’s no other way to scour billions of transactions while money launderers, human traffickers, drug dealers, and other criminals grow more sophisticated and tech-savvy daily. Vanderford cited AI proponents, saying, “AI can do the job better, require less staff, and enable continuous check-ups on customers and transactions for money-laundering issues and sanctions violations.”
To understand the power of AI-driven systems of intelligence in confronting these myriad challenges, it’s worth looking at how similar tools are revolutionizing health care – specifically preventing heart attacks.
The Semmelweis University Heart and Vascular Center in Hungary has treated thousands of patients with heart disease. They collected troves of data and images to create a patient similarity network. In short, they had a potentially powerful system of record. However unlocking the system’s potential required deploying an AI platform. The platform found patterns and delivered insights. This was achieved through a combination of topological data analysis and supervised and unsupervised learning.
The Center created a system of intelligence that is now detecting cardiovascular risk sooner, predicting patient outcomes more accurately — and saving lives.
This example shows how a system of record is only the first step in deploying data to improve outcomes. Taking the next step allows organizations to identify recurring problems. And they do it far more effectively. They start looking ahead constantly to identify risk. During a time of staff shortages and rising demands across sectors, AI crucially allows companies to increase efficiency without increasing head counts.
More than three in four financial executives see AI-enabled risk detection driving improvements in fraud prevention over the next year, according to a recent survey. More than half see it driving advancements in credit decisions and cost savings.
Firms with a system of intelligence stand to see significant reductions on two fronts. They significantly cut costs. And they avoid the potentially crushing blow of attacks or missed opportunities.
Making all team members directly accountable to you through modern platforms means fewer surprises.
Most marketing, public relations and sales agencies will tell you with pride that you will have a single point of contact who will own their relationship with you. You will barely see the other folks working for you.
It’s also true in other industries from fund administration in private capital to IT implementation.
The problem with this model is that your single point of contact might be the only person at the service provider who knows your business. This situation is why private capital CFOs for instance keep their fund administrators after they’ve invested significant time in a long-running relationship. It’s also why they switch fund administrators when there is too much churn at their service provider’s firm.
The same thing happens in marketing and public relations, but let’s stick with the fund services model for the moment. We’ve seen the future in that particular space.
Who’s in charge here?
Should you really need a designated advocate and single “throat to choke” to get the rest of your partner’s team to understand your needs?
Talking to leaders in the fund services industry has caused us to ask whether a “single contact” is a cover for the fact that everyone else touching your operations is a specialist who is shuffled in and out to perform work without deeply understanding how your business works.
Leading teams are built around a more robust model where you have a more complete and visible team helping you out, that sees and knows what you are trying to achieve. It’s something that’s caused us to reflect on our own business, including in the past two weeks when the two primary leaders of our outfit were off the grid.
Have we done a good job of ensuring we have a deep bench that’s well versed in our clients’ work and how to best support them?
Every person, a point person
Does your partner ensure all team members can serve you directly along with the team lead.
I don’t want to overstate that point. Different members of your partner’s team have different levels of experience and unique specialties. Going back to fund administrators, these firms often err on the side of a single point of contact where knowledge of your needs and style are consolidated.
But more sophisticated firms are now erring on the side of the full team being allowed to focus on your needs on a sustained basis. Every member of your outsourced team becomes immersed in what makes you unique in the private capital ecosystem. They develop well-rounded private equity professionals versus specialized fund administrators.
The result is that every member of the team serving you is known to you, and fluent in your firm’s culture, process, and aims.
That approach often surprises clients. It frankly feels like a truly in-house team (I know, this rhetoric is over played… but when it really happens you know it).
Here’s where tech can come in.
The Amazon approach to fund services (and professional services)
In this system, if it’s supported by the right tech, team members handle client inquiries in near real-time, through chat — coordinating the full team to eliminate fragmented responsibilities and multiple meetings and emails.
That also means being built to allow for small teams that focus on smaller sets of clients. (Amazon has shown how this approach scales with Jeff Bezos’ “Two-Pizza Teams.” We should be able to feed your team with two pizzas. That’s the right size to be cohesive, collaborative, and aligned with your team.)
This is fueled with data securely available to all team members so they have up-to-date knowledge of who has talked to the client, when they spoke, what the client’s latest questions or directions were, and how they or others can help the process. Client teams are well-informed, don’t encounter duplicative questions, and don’t wonder where outstanding work stands. Lastly, you expand the efficiency of each outsourced team member and the intelligence of their work with data operations and automation. When you’ve done this, you’ve reduced friction significantly.
This approach also means you’re able to move from peaks and valleys of activity to streaming work that is more agile than any legacy approach.
We expect others will attempt to copy this strategy, and we encourage them to do so.
From talent managers to operating partners and marketers to fundraisers, leaders at private capital firms are becoming increasingly frustrated. The fundraising cycle is slowing, budgets are shrinking, and everyone’s looking at how to get to sustained profits… yesterday.
So, do you need an advisor to help you through challenges like this? It’s another expense, not an immediate contribution to the top line. If you do, what exactly do you want in an advisor?
Let’s look at employee benefits for example. We’ve done a fair amount of work in the insurance, benefits, carry and compensation space. So, we’ll take a deep dive here to illustrate some points.
Benefits
Corporate employee benefits and health insurance costs are steadily rising with an apparent scant increase in value (thought let’s save that for a separate debate). Yet, balancing savings with team wellness makes for tough choices. Not only is the health insurance market confusing, fragmented, and risky, this proverbial maze is constantly changing and always full of surprises.
The common solution of switching to another prepackaged deal has its drawbacks. Transition costs can often outpace regular price hikes. Prepackaged solutions can’t always match an employer’s unique needs, either. And given the current labor market — an exceedingly tight and competitive space that places employment benefits and other perks under the microscope of potential and existing employees — retention and recruitment challenges are constant.
To better navigate this maze, private capital firms may find it advantageous to seek help from a benefits advisor who can serve as an extension of their deal, operations, and procurement teams. In fact, advisors who stand apart from the broker and are familiar with the dynamic between general partner teams and portfolio companies is especially valuable in the private capital world.
This point goes beyond benefits and talent. Independence, when it comes to advising on something that can make a decisive difference in your business can be more important than getting that thing in a package wrapped up with the service you’re trying to analyze. The same goes for having independent investor relations counsel in addition to an investment bank, not relying entirely on the investment banking team for counsel.
Let’s explore this further in the benefits context, starting with the challenges posed by the current benefits and insurance landscape.
Status quo no more
The employee health insurance market is not designed to be easy to navigate. Adding yet another layer to this fundamental challenge, the benefits maze is also constantly shifting and evolving. As soon as you have a strategy for navigating your way forward, the landscape changes.
While cost containment remains a steady concern among private equity firms, retention and recruitment issues have begun to influence health insurance and other benefits, too. These offerings are a vital part of professional employment packages.
Conducting a comprehensive review and developing a competitive benefits strategy that matches the unique needs of current and potential employees can be difficult, however, when prepackaged or “status quo” solutions are the only options on the table. Also, given the current pandemic environment and its widespread effects on the economy and labor market, it’s clear that we’re living in volatile times.
So, customization appears to be the name of the game. And that goes for much or the operations landscape, right down to marketing and the IT stack. But customization also incurs costs.
Customizing, a magic bullet
Developing a strategy that provides bespoke, yet cost-efficient plans may be the best way to contain spending while keeping team members happy.
Easier said than done.
True benefits strategy takes shape when you ask the right questions, build a framework that helps explain why things are the way they are, and then test your assumptions until a realistic — and sometimes uncomfortable — picture of a company or portfolio’s situation emerges. That’s when you can measure a company against industry benchmarks and start implementing realistic solutions, including those that include cross-portfolio oversight and collaboration.
Part of this process entails unbundling the various components of health insurance options to find the most efficient approach to piece together a bespoke plan. Of course, this process can be extremely challenging. Navigating all possible options and their complexities requires a level of expertise that may not be available within the firm. Hence, the need to outsource benefits strategy.
Seek guidance from outsiders
Think of an independent an outside advisor as an experienced traveler navigating a changing river who knows how to test what’s happening under the water. In addition to knowing where the maps will steer you right, an advisor knows when and where the maps are out of date. Ultimately, an independent advisor can guide you through the trickiest and most rapidly changing parts of your perilous journey.
For example, would it be more advantageous to adopt a self-funded approach with stop-loss protections or would it be wiser to establish a licensed company offering a captive insurance plan? Might the adoption of a reference-based plan provide better pricing than another that’s carrier-determined? Could alternative funding vehicles help ease expenses on the high-cost claimant end? Most importantly, is the necessary data there to make the clearest assessment before a final decision?
Wanted: a great advisor
What, then, makes a good strategic advisor? Here are some things to look out for:
Adding value
The healthcare insurance and benefits landscape may be a shifting maze whose only fixed features are rising costs and flat or declining values. That’s true of many business systems and functions currently, including marketing and public relations.
That will likely remain the case if prepackaged solutions remain front and center in the development of enterprise-level strategies. There are plenty of other options available.
Seeking the help of an experienced strategic advisor may be the best way to develop a process to expand your bottom line while adding significantly more value for your current and potential customers, investors, and employees.