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GP-LP relationship ‘challenged’ by transparency demands

Two reports conclude transparency requirements are affecting the GP-LP dynamic and can be difficult to achieve.

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Two reports conclude transparency requirements are affecting the GP-LP dynamic and can be difficult to achieve.

Almost three-quarters of fund managers believe the GP-LP relationship is being challenged by transparency demands, according to a report by fund services firm Intertrust.

In total, 61 percent believe LPs’ requirement for data, such as requiring the use of the ILPA fees and expenses reporting template, is problematic, while 37 percent say increased regulatory reporting requirements is adding to the strain.

Investors are specifically seeking increased transparency on fee structures (72 percent) followed by the performance of underlying assets in each portfolio (54 percent).

In response to this, 61 percent of managers said they are prioritizing improving the use of reporting templates.

A separate report on transparency, released by fund administrator Northern Trust, concluded that barriers to transparency can be overcome, but the method of doing so will depend on the type of data concerned.

“If disclosing details about valuations (and making those valuations subject to freedom of information requests) effectively puts a cap on the asset price, or affects the price of an initial public offering… transparency may work against both the manager’s and investor’s long-term interests,” the report stated.

More complex investment strategies also make transparency more challenging, as investors’ data requirements begin to increase, alternatives managers commented in the report.

“Our business is not ‘apples to apples’ with other fund types, and so investors may not understand that our controls are adequate,” the report described private equity, real estate and infrastructure managers as saying.

Information on environmental, social and governance investment strategies is less controversial to release as managers’ and investors’ interests can easily be balanced. However, transparency on valuations methodology may be harder to fulfill.

The fund administrator recommended private equity managers and investors take a more ‘deliberate’ and ‘nuanced’ approach to transparency, if an industry standard is to be reached.