LP focus on reporting quadruples YoY

As further evidence of the increase in investor reporting demands that private equity chief financial officers (CFOs) have faced since the great financial crisis, fresh research reveals that LPs were four times more likely in 2015 than in 2014 to name reporting as their number one area of concern for private equity funds, according to Disruption: seismic shifts in the private equity industry, EY’s 2016 global private equity fund and investor survey.

The survey, conducted in conjunction with parent publisher PEI, asked investors to name their top private equity fund concern beyond track record. While 11 percent of LPs said reporting was most important in the 2014 survey, a whopping 44 percent named reporting as the number one concern in 2015.

This shift is burdening finance teams to search for answers to better data management and technology. The issue is especially pervasive because of the current reliance on manual processes at many private equity firms, noted Scott Zimmerman, EY private equity assurance leader for Americas and one of the lead authors of the study.

“There are not a lot of sophisticated, integrated systems where information can flow from one piece of the business to the other. Instead there are numerous bridges that have to be walked across, and usually those bridges are spreadsheets,” noted Zimmerman. “It’s creating a real burden on finance teams.”

Indeed, 63 percent of the CFOs surveyed stated that data is the most significant operational challenge they currently face.

But as private equity funds become more digital in order to keep up with increased investor and regulatory reporting, the importance of cybersecurity only grows, noted Zimmerman.

While private equity funds are increasing their focus on cybersecurity policies and programs, only 7 percent of the investors surveyed said they are satisfied with their fund managers’ current cybersecurity policies. Interestingly, most of those investors also said they do not see cybersecurity as a high risk in current regulatory campaigns.

“Cyber-threats are a real business risk; the day cybersecurity becomes a top priority is the day one of their funds is directly affected,” noted Zimmermann. “There just needs to be a wakeup call, and it will happen, it's just a matter of when.”

The full results of Disruption: seismic shifts in the private equity industry will be presented at the 2016 PEI CFOs and COOs Forum on Wednesday in New York. For more coverage on the survey, please see the March issue of pfm.