Investors’ demands for data are growing exponentially and, in some instances, general partners are pushing back. So said panelists last week at a Cobalt and MVision Private Equity Advisers event on bridging the data gap between GPs and LPs.
When the industry was still young, “it was a very secretive business,” said COO of Kohlberg & Company, Shant Mardirossian. “GPs had much more control over selecting which LPs they want to work with. Obviously the market has become much more competitive, but LPs have become much more sophisticated in wanting to understand the nuances to those valuations, behind those IRR calculations, or behind the investment thesis and how value creation occurs.”
As the GP-LP relationship becomes more transparent, GPs are still hesitant to hand over all detailed track records: “The GP pushback is ‘look, what are you doing with all this data?’,” noted co-panelist and Hamilton Lane managing director Andrea Kramer. LPs want to dig deeper than simply gross returns. “It’s not just a question of how you think about each of the investments you’ve made,” said Kramer. “[In other words], tell me what investments are made, help me see it from a gross standpoint, plus I also want to see it from a net standpoint. Help me to understand how you actually constructed that portfolio.”
“You can plate it in a way that is attractive to get that first meeting, but the LPs are not the judges of the food channel, they are more like the FDA,” said Hussein Khalifa, founding partner at MVision Private Equity Advisors. “They’re going take everything, tear it apart, and look at things you may not necessarily want them to look at from the beginning.”
“The most important thing you can do with your GP-LP relationship is make sure that there is trust” said Mardirossian, “And that’s the way you build long-term relationships.”