How the Ongoing Struggle Between Reporting and Standardization Is Impacting the LP-GP Relationship
With data-hungry LPs requiring increased levels of transparency from GPs, standardized ILPA reporting templates disclosing fees, expenses and carried interest are no longer optional in the view of many investors.
7 June 2021
The private equity (PE) industry continues to face a challenge of alignment, transparency and standardization when it comes to data and reporting. Limited partners (LPs) eager to gain deeper insight into their investments want to be able to drill down into data without triggering an avalanche of emails from administrators. General partners (GPs) continue to field increasing volumes of custom data investor requests that divert investor relations teams away from focusing on higher-order tasks. Although reporting standards have been improving, the industry still has a way to go in meeting investors’ expectations.
To shed more light on this topic, I recently moderated “PE Investor Best Practices: Data Transparency and Standardization,” a webinar hosted by SS&C Intralinks and ILPA.
I was joined by a panel of PE industry experts — Neal Prunier, director, standards and best practices at Institutional Limited Partners Association (ILPA); Raphaelle Koetschet, head of PE/infrastructure/RE fund investments at Caisse des Dépôts; and Adrian Ohmer, investment director at The Kresge Foundation — who gave their insights on this critical LP requirement, how fund managers can deliver it and where the industry is headed in 2021. These were some of the key LP insights:
1. ILPA reporting is a dealbreaker
More LPs than ever view the standardized ILPA reporting template as a crucial factor when it comes to considering an investment in a new fund. The degree of standardization displayed at the due diligence stage communicates a clear message to LPs about how the GP operates their business and how transparent they are. Many LPs will not invest in a fund if the GP does not provide ILPA templated disclosures at the outset.
2. Excel and PDF reports – there is a “healthy balance”
In recent years, LPs have encouraged GPs to put more of their efforts into standardizing their reporting in Excel. That means making sure funds are reporting on data uniformly each quarter, with the same standards, and that they are not adding new line items. With that said, LPs recognize the importance of PDFs in providing narrative support if additional background is needed to explain the Excel data.
3. DE&I and ESG standardization efforts are accelerating
Diversity, equity and inclusion (DE&I) and environmental, social and corporate governance (ESG) metrics are the next frontier of standard data. Many LPs predict these metrics will be just as important as capital calls in the coming years. ILPA is working with investors to ensure that data can be easily reported and standardized. Baseline requirements are being set in terms of data reporting and transparency, and many LPs are asking questions during diligence around carry splits, hiring retention and how those metrics are changing from year to year.
4. LPs are increasingly looking for clean data that can be merged into digital solutions
According to a recent ILPA survey, 97 percent of investors increased their tech spend in 2021. LPs are replacing manual data management with software to support their performance monitoring, measurement, portfolio company reporting and ESG screening and validation. As automation becomes part of LPs’ standard operating procedures, GPs will need to be able to deliver clean data that can be integrated into these tech systems. The demands for GPs to digitally transform will only increase in the next few years.
LPs are continuing to push for standardization to make better-informed decisions more quickly. GPs that can provide standardization could have a competitive advantage.
My thanks to the panelists for sharing their insights. You can watch the full webinar recording on-demand here.
As Director of Strategy and Product Marketing for Intralinks, Meghan McAlpine is responsible for the go-to-market strategy and driving the growth of the company’s Alternative Investments solution, the leading communication platform for private equity and hedge fund managers and investors.
Prior to joining Intralinks, Meghan worked in the Private Fund Group at Credit Suisse. While at Credit Suisse, she raised capital from institutional and high net worth investors for domestic and international private equity firms.