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Size matters in private equity reporting, says eFront research

Larger private equity LPs receive more information from GPs, according to new global survey of private equity reporting practices carried out by eFront. The survey also reveals that best practice in PE reporting is correlated with better performing funds.

‘Mind the Gap: a global survey of private equity reporting practices’ covers almost 1,800 active alternative investment funds, and provides insight yet into the state of private market investor reporting.
According to eFront’s data, as we move from the low to high performing funds, the funds become more likely to conform to standardised reporting template requests and the difference in the information quality and quantity between conformant and non-conformant funds increases.
Better performing GPs submit standardised reporting templates in addition to proprietary quarterly reports relatively more often, possibly because they are happier to provide granular detail on their financial performance and may also be eager to allow LPs to compare their performance with their peers. As we move from the low to high performing funds, the funds become more likely to comply and the difference in the information quality and quantity increases.
The scale of the LP and GP is also an important deciding factor in conformance levels, with larger LPs more likely to receive standardised templates. The average AUM of LPs with more than 70 per cent conforming GPs is almost USD30 billion, compared with USD22 billion for LPs with less than 70 per cent conforming GPs. Funds larger than USD10 billion, meanwhile, are in 22 per cent more cases more conformant than the funds with managed capital worth less than USD1 billion.
Besides the performance and the size of the GPs, other characteristics that affect conformance levels include the geographical focus, the fund type and its stage focus and the vintage year, among others. North American funds are by 34 per cent more conformant than the European funds, while Buyout and Growth Equity funds are by 45 per cent more conformant than the VC-focused funds. Conformant funds tend also to be younger, on average incepted one year after non-conformant funds.
Another source of variability in GP’s completion rate is the number of LPs that received the same type of reporting template. For each additional LP receiving a report from a GP, the amount of information submitted by the GP increases by more than 5 per cent, on average. This finding can be explained by the presence of economies of scale in managing the data for the GP management company.
Tarek Chouman, CEO of eFront, says: “As regards reporting conformance, excellence seems to be pervasive: the best-performing GPs also tend to be those with the most comprehensive and consistent reporting practices, typically via digital platforms.”
“With standardised templates, LPs can expect to receive up to 70 per cent more information than if proprietary quarterly reports are used. Furthermore, the quantity of information provided via templates increases with the number of LPs who request the same type of reporting template. One conclusion is that small to mid-sized LPs can benefit in terms of the quantity of information received from joining up with the larger LPs when requesting the data in the same format.”
Consistent GP reporting is defined as using the same format of reporting with all LPs and providing consistent information within that. A GP is considered to report inconsistently if it submits a regular quarterly report document to one LP and a standardised reporting template to another LP. Also, if a GP submits templates to all its LPs, but with different content or amount of information reported in the templates sent out to different LPs, it would also be considered inconsistent.
On this basis, more than a quarter of funds in the sample (26.1 per cent) report inconsistently across different LPs. The figure is most pronounced among European funds, with 29 per cent of funds reporting inconsistently. Asian GPs have a significantly lower fraction of funds that report inconsistently, at 20 per cent, while North American and globally invested GPs are in line with the average in the overall sample.
Chouman adds: “Information asymmetry is a fundamental feature of direct private market deal-making. The fact that such asymmetries and inconsistencies continue to exist at an investor level, not just between fund managers, but also between investors in the same alternative investment fund, underlines the continuing need for LPs to be informed and strategic in their allocations and interactions with fund managers. As one of the most experienced independent providers of software and information services to the global alternative investment industry, eFront is in a truly unique position to observe the GP-LP reporting relationship and describe the current industry practices.”
The completion rate is calculated as the percentage of the data points required by the template that are provided by the GPs, either by completing them directly into template submitted to LPs or by reporting the same information in the quarterly report document. Conformant funds provide almost 20 per cent more of the total required information than non-conformant funds. Of conformant funds, the top quartile funds provide 71 per cent more information than the average non-conformant fund.

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