General partners that have a 10.2 percent higher internal rate of return than their peers are more likely to conform to standardized reporting template requests that provide more information to limited partners, according to a survey by eFront, an alternative investment management software company.
Standardized reporting templates are different from proprietary quarterly reports, which all GPs submit. LPs increasingly have been asking GPs to provide reporting templates which generally go into further detail about the management company’s staff, fees, how valuations are determined and more.
One possible reason for this is firms with good performance are more likely to be willing to report to their LPs since it will show them in a good light, especially when compared with their peers. Firms with less positive returns might not be as forthcoming.
Blinn Cirella, the chief financial officer of Saw Mill Capital, says her firm is obliged to to report performance to investors at least twice a year. “So, if you have not-so-good returns then you would likely try to limit reporting to those two times only,” she tells pfm. “If your returns are good, you would of course be happy to report as frequently as possible.”
LPs with more assets under management are more likely to have GPs conform to their reporting demands than LPs with lower AUM. LPs with more than 70 percent of their GPs conforming to templates have an average AUM of almost $30 billion, compared with $22 billion for those with less than 70 percent of GPs conforming, according to the survey.
This is something that is “absolutely” common in the industry, Cirella says.
Transparency or a lack thereof when it comes to reporting has been a growing concern among investors, and could be hurting the private funds industry, a topic discussed at the British Private Equity and Venture Capital Association’s annual conference in October.
This story and headline have been amended to show that GPs with higher IRRs are more likely to conform to standardized reporting template requests.