Finding ways for software systems to more easily communicate with one another across LP and GP platforms would mark a significant milestone in creating more efficient methods for the industry to use when sharing fund information.
That was the message delivered by a panel of speakers who gathered in New York last week to attend the PEI CFOs and COOs forum 2013.
Progress has already been made on the goal in recent years, as both the Institutional Limited Partners Association (ILPA) and the International Private Equity and Venture Capital Valuation (IPEV) board have released reporting guidelines for consideration.
However it has proven difficult to reach complete standardisation because of the diverse range of fund managers (ranging from venture capital to mega buyout specialists) the guidelines are meant to be used by.
According to speakers, technology can be the answer that bridges the gap. During the panel session IPEV vice chairman Bill Hupp said his board hopes to create “electronic data exchange standards” that would set the stage for significant improvements in GP and LP productivity and reporting accuracy. The challenge is “getting the definitions down so the databases can talk to each other,” Hupp said.
With respect to technology, we need to be thinking forward. How can we leapfrog to get there?
Indeed, unless the industry can agree on commonly used definitions in reporting, it will be too difficult to create consistent data standards, according to the panel.
In a follow-up conversation, Hupp indicated that “with the typical LP investing in multiple funds and through that likely thousands of portfolio companies, there is a significant amount of detailed information to track every quarter. Just taking into account the basic information that passes from GPs to LPs, any small savings from improved LP data entry processes (and the resulting improvement in information accuracy) will be realised across the industry in significant reductions in the cost of transparency.”
If common definitions are agreed, a challenge in itself, many software providers may then need to play catch-up. Many of today’s software systems offer limited flexibility on certain data points needed for standardised (and electronically shared) fund reporting, according to panelists. “When uploading some portfolio company data, our firm’s funds controller noted there were five different measures of EBITDA disclosed, but the entry spot only offered room for one,” said Hupp.
ILPA managing director Michael Elio, who moderated the panel, said the LP trade body was “technology agnostic” but interacting with a number of data exchange groups to further develop a universal reporting standard in the industry.
Elio continued: “With respect to technology, we need to be thinking forward. How can we leapfrog to get there? That’s where the data sharing can go. That’s where the opportunity is.”
Software providers for their part have already picked up on the market demand – leading some to consider ways their platforms can cater to both LPs and GPs. For example, iLevel Solutions recently reengineered its data and reporting software built for GPs to create a bespoke web platform for institutional investors. The hope is to ultimately create a shared resource centre that GPs and LPs use together.