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Private Equity Risk Managers

History

The field of private equity has been around for more than 110 years, but it was not until the 1980s (when Congress relaxed both pension fund restrictions and capital gains taxes) that the industry began to experience strong and sustained growth. During this time, several of the best-known firms were founded—Bain Capital in 1984, The Blackstone Group in 1985, and The Carlyle Group in 1987. The industry went through several boom and bust periods and financial scandals that prompted increasing U.S. and foreign government regulation (e.g., Sarbanes-Oxley Act, Dodd-Frank Act, Foreign Account Tax Compliance Act, Alternative Investment Fund Managers Directive). As a result, private equity fund investors have begun to take a more active interest in how funds are managed and the possible risks of their investment. “Investors want to know that the private equity firm has the experience and ability to handle risk,” according to Positioning to Win: 2015 Global Private Equity Survey, a report from professional services firm EY and Private Equity International. “They want to know that the private equity firm is living up to its fiduciary responsibilities. They want to understand how the private equity firm operates the business. In short, they want to be comfortable with their investment decision.” Consequently, managing partners are now more cognizant of risk, have implemented more risk management strategies, and tout these initiatives as a strategy to attract and retain investors. This has translated into more opportunities for risk managers, as well as increased risk management duties for chief financial officers at PE firms.