Shifting investor expectations and requirements have changed the nature of GP communications strategies.
Due to the growth of the industry and the diversification and sophistication of private capital portfolios, LPs often have more in-house professionals who specialized in this area. As a result, they are more proactive than ever when it comes to screening and due diligence.
Where before, high level returns information alone would satisfy an investor, they now want to know more. Beyond just the data they want assurances as to the quality of the information they receive, how often it is delivered and whether a standard methodology is applied. GPs, therefore, should integrate this information into their communications strategies.
Leopold Peavy, Head of Investor Products at Preqin, said: “As investors allocate more capital to private capital asset classes, being able to standardize and analyze data received from GPs is more important than ever.”
Since the Global Financial Crisis, investors place greater importance on transparency. In pursuit of that, LPs request more performance, portfolio and ESG information from GPs than ever before. To win investor trust and survive in today’s competitive environment, GPs should aim to respond to these demands in a reliable, accurate and timely manner.
In response to LP demand and reporting requirements, The Institutional Limited Partners Association’s (ILPA) fee-reporting template has been adopted by more than 160 GPs (as of Q1 2017). The ILPA Reporting Template, which launched in January 2016, standardizes the recording of private equity cost to improve disclosure on fees, expenses and carried interest.
Lorelei Graye, Founder at Leodoran Financial, said: “The ILPA Template responds to the needs of many LPs looking to measure or disclose investment costs, including carried interest, in a consistent format. Previously, the task was extremely difficult for investors, who typically had dozens or even hundreds of private equity investments, each with different reporting formats and details.”
To drive further global implementation, the ILPA this year announced its intention to provide new guidance on the role of third-party service providers in ensuring template compliance.*
Fees, however, are just the beginning. Sophisticated LPs are increasingly concerned with underlying portfolio metrics. This helps to inform how their managers generate returns, which provides insight into the likelihood of future performance. It also helps LPs to determine their underlying portfolio exposures and risk. GPs may turn to third-party service providers to report on this valuable information.
How can GPs meet LP reporting expectations and improve their IR strategies?
- Standardize reporting procedures
- Prioritize transparency – provide reliable, accurate and timely data
- Use portfolio company monitoring (PCM) solutions, such as Preqin Solutions, which integrate industry-recognized templates and standards
- Consider third-party valuation and fund administration, which provide LPs and regulators with independent reporting
- Experiment with the latest technologies, which provide more data interaction
- Try newer communications tools like video and social media, as well as traditional methods such as fund reports and AGMs
- Remember that different investors have different needs
LPs require more access to data and information than ever before, which can be overwhelming for GPs. Software and third party service providers such as Preqin Solutions help GPs to meet those needs and improve upon their communications strategies by providing LPs with instant access to accurate, up-to-date portfolio information.
*Preqin Solutions operates in accordance with The ILPA Reporting Template
Chief Executive at Preqin Solutions, Chris Ferguson, will be speaking on ‘LP interviews: clarifying their demands, what and why?’ at the SuperReturn CFO/COO event on 12 September 2017. To see the full agenda or to attend, please visit the website here.