Opportunities for Directors in Private Equity

Private equity boards enable directors to hone their skills without the publicity and liability that can be associated with public boards. 

Chris Beall, former member of the board of Amtrak and founder and managing partner of NOVA Infrastructure, believes we are in the midst of a boom time for private equity firms. 

“This is one of the most attractive moments for private equity firms in the past several decades. This is primarily because customers — known by most private equity firms as limited partners — are increasingly aware of and desirous of the benefits of private equity investments. These include diversification and, in many cases, lack of correlation with public equity and debt investments. Private equity investments also have enhanced downside protection features and opportunities for additional growth. Many of these limited partners have growing assets under management, which, along with industry consolidation, is driving profound growth in many private equity firms. As the industry grows and consolidates, it is also creating new opportunities in niche segments of the market. That, combined with a still-attractive interest rate environment, is more than compensating for the various challenges the market is facing.

This period of thriving for private equity also opens up opportunities for directors. We spoke with Beall about why boards are beneficial for private equity firms and why first-time directors are especially ripe targets for the private equity space. 

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Private Company Director: In what ways would a board be beneficial for a private equity firm?

Chris Beall: The structure of private equity firms (the fee levels, hurdle rates and carried interest) means that private firms must perform better than their public counterparts. The foundation many private equity firms lean on to generate this return is expertise and the relationships developed over years of experience in various sectors. A strong board of directors can be the perfect way to access outside expertise and hone strategies for the company before implementation. While private companies may have different goals and incentives than public companies, I think in many ways they have a greater need for expertise and outside resources to achieve their goals.

PCD: Why would it be a good idea for a new director to make their first board the board of a private equity firm portfolio company?

CB: It would be a good idea for several reasons. First, on many private company boards, you can learn and hone your skills without some of the publicity and, unfortunately, the liability issues that may be associated with a public company board. Second, private company boards may have greater structural flexibility than many public company boards and an informality that is helpful for directors serving in their first board role. Finally, directors of companies owned by private equity firms frequently benefit from a “network effect” that allows directors to benefit from the experience and knowledge of other directors in a private equity firm’s portfolio. While there are some great organizations that try to replicate this for public directors, the private networks of some of the larger private equity firms can be quite powerful for learning and sharing best practices.

PCD: Is there something about a first-time director that is a particularly good fit for private equity? Can the new and fresh ideas be particularly helpful in that segment?

CB: One of the most desirable attributes for a new director of private equity owned company is a deep well of knowledge and experience that makes them a subject matter expert in a particular area. While most private equity firms would like a board with diversity of experience and backgrounds, they are also frequently looking for directors with deep experience in either an operating discipline (human resources, legal experience, operations or business development) or in a particular industry (healthcare, industrial operations, infrastructure, etc.) that gives the portfolio company an edge on its competition. A well-constructed board combines these attributes while helping the company to capture its particular market opportunity.  

PCD: What traits make a director a natural for private equity? 

CB: The best independent directors on boards of private equity owned portfolio companies understand that they have an important role on a board that requires them to communicate, collaborate and empathize with each other, management and stakeholders to apply the benefit in a practical way. They also understand that they are part of a bigger ecosystem beyond their company. If they can keep the bigger picture in mind, they can make the overall portfolio more valuable than the sum of its individual parts. For example, let’s say the director of a real estate investment trust that appreciates his private equity sponsor also owns a waste company. Through the appropriate connection, that company could be a vendor for his REIT and potentially add value to both companies while enhancing the overall value of the sponsor’s portfolio. That ability to combine expertise, soft skills and a sense of the bigger picture would make any director extremely valuable to their private equity partners.  

PCD: Are there any best practices for preparing a first-time director to serve on the board of a company owned by a private equity firm? What can the director do to prepare themselves, and what can the board do to ensure a successful onboarding?

CB: Every director should go through a detailed screening and training process so they are fully aware of their roles, responsibilities and expectations before they start their directorship. The candidate for a board role can aid this process by asking lots of questions and meeting as many people as possible at both the company and the fund that owns the company before accepting a role. Companies have different needs at different stages of the investment process, and every sponsor has a unique set of goals and plans for their portfolio. Some private equity funds expect directors to advise their teams but ultimately exercise control in decision-making, while others delegate significant responsibility and expect directors to act with high levels of autonomy. Knowing what those expectations are ahead of time can avoid time-consuming and painful missteps. Having frank conversations early to set these expectations can also help accelerate the process of adding value. Knowing your own goals as a director can help create a satisfying, mutually beneficial relationship that can expand and grow over time.  

About the Author(s)

Bill Hayes

Bill Hayes is managing editor of Private Company Director.


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