Nearly half of GPs (47 percent) expect to hire more back office professionals over the coming 18 months, according to a poll of 40 delegates carried out by software provider iLevel Solutions and advisory group Hamilton Lane at the Duff & Phelps Annual Alternative Investment Conference last week.
The findings come at a time of shrinking management fees for many fund managers who are tightening their belts in response to a smaller budget.
The poll revealed that increasing investor reporting demands; regulations such as the Alternative Investment Fund Managers Directive in Europe and Dodd-Frank in the US; and fair value reporting were the primary drivers of the trend.
Indeed over the last 18 months, half of GPs said they had already begun hiring more accountants, compliance officers and investor relations staff to remain competitive in today's private equity market.
Those GPs unable to boost their back office may face a difficult challenge. Nearly half of GPs in attendance admitted they are still falling short in their LP reporting or struggling to fully understand their reporting demands. PE Manager recently ran an opinion piece arguing that private equity firms may need to embrace state of the art software solutions to satisfy LPs' reporting expectations, if for example, unable to increase headcount.
Those that fall short on reporting risk losing capital commitments, noted at the conference Laurence Tosi, chief financial officer of The Blackstone Group.
“We are absolutely seeing capital commitment decisions being made based on the fund manager's ability to offer transparency and better reporting to their limited partners.”
The move by GPs to increase their reporting output cannot come too soon for Erik Hirsch, chief investment officer of Hamilton Lane: “Many large pension fund CIOs today cannot track earnings or debt levels across their private equity portfolio. It's unreasonable to expect the asset class will grow if the CIO can't get answers to those types of questions,” he said in a statement.
Tosi went on to cite a KBW Research CIO Survey which showed that investor reporting and transparency is the second most important factor in LPs' decision to invest, behind performance.