CFOs should lead the switch to calculating daily IRRs

Despite complete GIPS 2020 compliance being a goal a year or two down the road, calculating daily IRRs is a first step that will satisfy investors, say panelists.

CFOs should be leading the charge to switch their valuations team to calculating internal rate of return daily, said panelists at the CFOs & COOs Forum in New York on Wednesday.

The panel discussion, entitled “Staying ahead of investor reporting”, consisted of two CFOs, an LP and a fund administrator – all under Chatham House Rule – agreed that it is too costly for GPs to begin Global Investment Performance Standards compliance if their LPs don’t require it. But calculating IRRs daily does fall in the GIPS 2020 guidelines and is something CFOs can do begin adopting immediately to provide more transparency for their investors.

“Switching from pay-day calculations to daily IRRs is something that we can begin to change – that LPs will appreciate,” mentioned one of the panelists. Moving to performing this function daily will not only ease investor requests but help a CFO achieve a more thorough understanding of a GP’s well-being.

As the conference touched on a range of outlooks for the year but GIPS 2020 has been on the minds of many alternative asset managers. The new edition is the first update to the standards in a decade and places a particular emphasis on alternative asset managers.

Although more and more investors are demanding compliance to the new guidelines, GPs and CFOs are waiting for investors to demand it. GPs don’t want to take on the resource-heavy transition to full compliance if their investors aren’t requiring it.

Despite requests for complete GIPS 2020 compliance continuing, especially this year, panelists agreed that GPs have done a very good job at providing more information to their investors in recent years. And this is a measure that can increase that goodwill even further.