Large firms may have to lead the charge towards a more transparent PE industry, say experts, as the capacity to institutionalize transparency practices becomes much easier with sophisticated data and IT systems.
“There is continued pressure on the managers to provide the transparency. The larger ones, they institutionalize [reporting] more and more. Smaller ones have more difficulty providing the data in an institutionalized fashion,” said Christian Hinze, chief operating officer of StepStone.
“[Smaller firms] are still predominately working on excel spreadsheets, compared to others that have more sophisticated data and information technology infrastructure.”
His comments were part of the virtual panel titled “What investors want” as part of PEI CFOs & COOs Europe Forum 2020, held earlier this week.
CFOs, who largely said before the crisis that investor reporting took up a large chunk of time, have since the onset of the crisis increased the frequency and detail of reporting to investors in many cases.
But investors want more than just a proactive manager – they want one that continually keeps investors up to date on reporting the operational changes that are underway.
“One thing that we would really like more of is if [managers] take their proactiveness forward and start reporting,” said Bola Tobun, finance manager of pensions and treasury for the London Borough of Enfield. “We’ve been in this pandemic situation for over six months and we don’t know long it’s going to go on for.”
Updates to business continuity plans and status of workforce management or general employee well-being should be included in briefings so that LPs can be aware of any cash flow insolvency difficulties, said Tobun.
“I think that will let us have more confidence in them,” she said.
The need for transparency extends to ESG, as well, where data and measurements can be all but meaningless without standardization of metrics.
“Standardization is needed on reporting the data on ESG,” said David Weeks, co-chair of the Association of Member Nominated Trustees. “Most commentators believe this will come, but there are certainly gaps.”
Some LPs are already beginning to pull out of investments they deem unsustainable, which could have its own effect on reporting and investment policy-making.
“Some pension schemes are indeed taking more direct action to pull out of certain types of investment,” Weeks said. “We’ll need to watch with interest how this trend develops a wave of generalized reporting.”
Investors are increasingly interested in not just avoiding certain investments, but measuring the positive impact of the ESG investments they make, said StepStone’s Hinze, further necessitating the need for standardized data.
“Nowadays it’s really all about having the ESG criteria fulfilled, which all started with exclusion but now becomes much more active in terms of impact investing,” he said. “But that is only possible if there is some sort of harmonization in the reporting.”