Transparency: How to best serve your investors
By: Kamran Anwar
According to Preqin, private equity now manages a record $2.49 trillion, and most of these inflows are institutional. Since private equity now manages a greater percentage share of investors’ portfolios, returns are impacted by performance now more than ever.
Hosting an annual general meeting (AGM) for clients is an excellent public relations tool, but savvy and sophisticated institutional investors expect more frequent and in-depth portfolio reporting. However, this reporting is not standardized; investors each have different criteria around risk metrics.
As the number of investors in a fund grows, these challenges increase. Co-investing creates reporting issues; managers risk giving some clients preferential treatment and information, which could lead to questioning by regulators.
Many industry groups have pushed for standardized reporting. For example, the fee reporting template from the Institutional Limited Partners Association codifies the presentation of fees, expenses, and carried interest information by fund managers for limited partners. While the report is being used more frequently, managers complain that since private equity is such a diverse asset class, it is difficult to submit information in a uniform format.
It’s probable that regulators will start to look into private equity charges more thoroughly. In addition, internalizing client and regulatory reporting increases workload and costs. In response, managers are outsourcing to save money, time, and resources.
While private equity fees don’t face the same amount of scrutiny as those of hedge funds, it is very probable that regulators such as the UK’s Financial Conduct Authority (FCA) will look into their charges. The menu of reports now required are the mainstay of leading administrators, who will have an industry-wide view on the submission process and regular contact with regulators so they know which best practices to follow.
Private equity has been somewhat hesitant to outsource administration. Some managers are wary about using a service that may not understand or accommodate the particulars of this complex and non-standardized asset class. Others worry about losing control and the impact of mistakes on capital calls or distributions.
In addition, many managers argue that there are no qualified vendors to manage their business. This was a legitimate concern several years ago, but today there are many skilled administrators who are highly qualified to service private equity.
Selecting the right administrator is essential. Liaise with your institutional investors for advice. Your provider must have an in-depth knowledge of illiquid assets and private equity structures. You have highly complex reporting requirements; make sure you choose an administrator you can trust. It is essential that your chosen administrator gives you the ability to scale, engages the right technology, and has experience with the full life cycle of the fund. That way, you can focus your time and resources on your core competencies.
SS&C provides the global private equity industry with a broad range of highly specialized software, software-enabled services and hybrid solutions, offering a single source of expertise for firms looking for an administrator.
To learn how SS&C can help you meet all your transparency requirements, contact us at email@example.com.