GPs seeking new transparency tools for LPs: PEI panel

At PEI’s COOs and CFOs Forum on Thursday in New York, fund managers examined the implications of increasing investor demands for information.

New technology and tools to foster stronger partnerships will be the keys to meeting increasing LP demands for information from GPs, according to panelists at the Private Equity International’s COOs & CFOs forum in New York last Thursday.

Speaking on a panel entitled “Advancing LP/GP Communication and Objectives”, panelists said the growth of private equity has brought about increasing LP demands for information on investment performance and management fees that one panelist described as “excruciating” at times.

The average public pension plan’s allocation to private equity has grown from 3 percent in 2000 to 10 percent today, according to data presented, bringing about increased scrutiny from those LPs. As a result, GPs have made adjustments, in some cases shifting from quarterly to monthly investment updates, catering to LP requests for direct and co-investment opportunities, and making staff adjustments by creating more client-facing positions.

“With my previous employer, the relationship truly was, ‘we’re a GP, you’re an LP, you’ll take what we can give you and we’ll be polite to you, and have annual meetings in a nice location for you to go visit,’” one delegate said. “That has completely evolved into: we are partners.”

Technology will play a key role in enhancing communication and information flow between GPs and LPs in the years ahead, panelists said. Software designed to catalog information requests, manage contact lists and analyze such communications to inform fundraising strategies have become more prominent, for instance. In response to a polling question, 86 percent of respondents said they are currently posting documents on such investor portals.

The Institutional Limited Partners Association (ILPA) template is another tool meant to foster transparency between GPs and LPs, but the tool hasn’t been fully embraced. In response to a polling question, 40 percent of the audience reported that they do not plan to adopt the ILPA template at all, 30 percent said that they plan to adopt a modified version, while 22 said they plan to use it for select LPs and just 12 percent reported plans for full adoption.

While its aim of fostering a more transparent flow of information is a good one, the ILPA template currently leaves data terms undefined and places staffing demands on smaller firms that could force them to go out of business or raise fees, one delegate argued

In addition, in response to a polling question, 60 percent of respondents in the predominately GP-populated audience reported that they have yet to implement a formal system for handling information requests from LPs.