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Interview with a Former CFO: How to Implement a Portfolio Insurance Program

The decision to implement a portfolio insurance program is not one that private equity firms take lightly. While pooling insurance programs across portfolio companies can yield significant savings and a more streamlined, coordinated risk management strategy, it can also mean severing existing relationships or adjusting to new administration. Having worked with many private equity firms to create portfolio programs over the years, I am acutely aware of the difficulties, and the rewards, of transitioning to a portfolio-level risk management program.

One of the private equity firms I was privileged to work with was Swander Pace Capital, whose former CFO, Heather Fraser, was an integral part of the creation and implementation of a unified insurance program for all of their portfolio companies, which included a range of consumer goods. In the years since, Heather has gone on to become a Managing Director and Private Equity/Buyout Practice Lead for Standish Management, a fund administration and consulting firm for private equity, venture, real estate/energy, and fund of funds. Heather continues to advocate for portfolio insurance programs in her work at Standish and is adept at overseeing risk management for funds of all sizes.

Heather and I recently sat down to discuss our work in portfolio insurance programs, and she offered her unique perspective as a former CFO and current advisor.

 

Josh: Tell us about your professional background and what you are doing today.

Heather: I began my career in public accounting for KPMG, focused on the higher education and healthcare industries, and then spent time briefly at a large public company, where I worked on several acquisitions as they integrated operations into the company. From there, I was fortunate enough to find Swander Pace Capital (SPC) despite having no experience in private equity. I worked there for about 20 years, where I was eventually the CFO and CCO and also oversaw their operations and administration as well.

Within the first few years of being at SPC I worked closely with the deal teams to understand the portfolio. SPC prioritized looking at the portfolio as a whole and I continued to figure out how to streamline some of the administrative tasks like insurance, operations, and such.

 

Josh: What involvement have you had in establishing portfolio programs?

Heather: When I joined SPC at the end of 2000, they had just purchased a three-year General Partnership Liability (GPL) policy and that was the first time purchasing any kind of insurance outside of basic theft or damage insurance of the physical office. When that policy began to near its end, I looked at each of the portfolio companies and found that it was really a patchwork of different coverages – and pretty inconsistent. So, I worked with our deals team and portfolio companies to establish a full D&O program across our portfolio by structuring it as an umbrella policy. Taking advantage of economies of scale and streamlining the renewal process made a lot of sense for the firm since we had majority control of the companies in our portfolio and working with a broker to figure out the needs of each of these companies made the process pretty simple.

 

Josh: How will a private equity firm know that it’s the right time to prioritize establishing a portfolio program?

Heather: I speak with a lot of first-time funds at Standish. In our business development calls, one of the things that always comes up when they ask, “Have I forgotten anything?” is insurance. Understanding the value of insurance isn’t always intuitive, and it’s important to protect yourself from the get-go. I personally think it’s the best money you can spend, because when you look at risk across your portfolio, you don’t know what you don’t know.

 

Josh: Knowing where to start is the hardest part. If you were kicking off a portfolio program today, where would you start?

Heather: I’d call you! All jokes aside, I’d begin by connecting with a broker or somebody to partner with that is going to take the time to look at my portfolio and my fund, is knowledgeable about the industry, and really willing to educate me about my options and where the market is heading. Trust in your broker is so important and can really make the difference when it comes to evaluating options and thinking outside the box.

 

Josh: What kind of challenges can private equity firms expect to encounter in the process?

Heather: One of the trickiest things about implementing a portfolio program is definitely navigating the existing relationships that portfolio companies may have with their current insurance brokers. As CFO of the private equity firm, I would often be seen as “ripping out” that relationship, even if the decision made sense for the firm and the company. I’ve found that education is key in overcoming those existing ties.

I would really work to help the teams understand why these decisions made good business sense and created actual savings for their companies. When we moved to implement a portfolio program at SPC, we brought in our broker and deal teams to each of the portfolio companies and had a kind of educational day, to just get to know each other and talk operations and understand insurance. We found that building up those new relationships made all the difference in making that transition.

Another struggle in transitioning to a portfolio program figuring out the price. Some smaller companies in the portfolio may not be in the financial position to purchase the coverage that the fund may think they need, so balancing the budget with the need of each company was a challenge.

 

Josh: What do you look for in a broker partner?

Heather: For me, it’s all about building a relationship where you trust the broker. A good broker will know their audience and recognize where the gaps in understanding are so that they can ensure that the team is informed about the decisions they’re making. I think it’s important for brokers to feel like an extension of your back office, or someone that you know is going to fight for you and act as a real partner. So, the broker’s expertise in understanding how the insurance product works and how to actually handle claims is important, but I’ve found that the broker’s ability to really understand the firm’s needs and work with them to get the best possible coverage is even more important.

 

At ABD, we recognize the value of building and maintaining relationships in order to find the best possible insurance solution for our clients. To learn more about our work with private equity firms and how we navigate the complex web of interests and connections intrinsic to these firms, visit our M&A Advisory page.


Josh Warren

About the author

Josh Warren

Senior Vice President

Josh is a Senior Vice President and M&A Advisory Practice Leader of Newfront Insurance and Financial Services. His responsibilities include operational leadership, client management, program design, and risk analysis for alternative asset managers and Newfront clients facing a merger or acquisition.


The information provided is of a general nature and an educational resource. It is not intended to provide advice or address the situation of any particular individual or entity. Any recipient shall be responsible for the use to which it puts this document. Newfront shall have no liability for the information provided. While care has been taken to produce this document, Newfront does not warrant, represent or guarantee the completeness, accuracy, adequacy, or fitness with respect to the information contained in this document. The information provided does not reflect new circumstances, or additional regulatory and legal changes. The issues addressed may have legal, financial, and health implications, and we recommend you speak to your legal, financial, and health advisors before acting on any of the information provided.

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