Q&A: The quest for standardised reporting

At what stage is IPEV in releasing its reporting guidelines?  

Hupp: IPEV will have a draft of the Investor Reporting Guidelines (IRG) out for comment by the middle of December, with the final guidelines out before the end of the first quarter in 2012. Similar to what we did with our valuation guidelines, the reporting guidelines will build off the work done before by regional industry groups (including the EVCA, BVCA, AFIC, AVCA, and PEIGG) to create a global set of guidelines. 

It’s interesting that IPEV will create investor reporting guidelines considering the recent reporting templates unveiled by the Institutional Limited Partners Association (ILPA). Will your guidelines be in competition to ILPA guidelines, or reinforce them?

It is curious, but I think coincidental, that ILPA was developing their standards at the same time that IPEV took on the task from the EVCA of updating and making global their existing reporting guidelines. You can’t deny that the markets since 2008 have increased a desire by all investors for increased transparency, which means more information. 

Bill Hupp

ILPA is an endorsing association of IPEV, so I don’t think of them as competitors. I view the work they have done as constructive in the sense that they’ve tried to clarify investors’ information needs. As you know, it is not the easiest thing to get all LPs to be in agreement. 

However there have been some concerns in the industry with certain areas of their reporting standards and also some concerns about the process followed in establishing their standards.  They have sought input from the industry, so I am hopeful that future collaboration will clarify some of the areas that people have questions about.

What exactly are some of those concerns? 

To a large degree there are more similarities than differences comparing the ILPA reporting standards to the existing EVCA guidelines. But within those differences, some chief financial officers in comment letters and during roundtable discussions have said what constitutes being in compliance with ILPA’s reporting standards seems very subjective and quite possibly unclear.  

A major issue is that there does not appear to be any differentiation between buyout firms and venture firms in terms of the data being asked for at the portfolio company level. With as many different sub-categories of private equity and venture capital as there are, it would seem to be impossible to have just one template to follow. 

Lastly the capital call and distribution templates are asking for a lot of data at the time of the transaction that cannot be accurately estimated or that is best provided in the quarterly reporting package.  

How might the IPEV reporting guidelines address or differ from these criticisms?

Since the IPEV reporting guidelines are still a work in progress I don’t have a full blown analysis of the differences, but we are trying to avoid the issues we see with ILPA’s standards. In our approach we have tried to determine what the essential disclosures are for GPs to meet the principle of transparency and provide LPs the core information they need as investors. This will make determining compliance easier.  

We also plan on differentiating between buy-out and venture firms.  This will extend to having multiple example disclosures to give providers better guidance in presenting information in formats that can better fit their firms.

Seems like a Herculean task. Is a standardised reporting template even possible in the private equity world?

It is not the intention of the IPEV reporting guidelines to prescribe the exact format managers should be using. They should have the latitude to develop reporting formats which correlate to the individual nature of their investments and their LPs. Instead the guidelines will highlight the essential content that should be reported to investors and provide examples of how that content can be delivered. Judgment must be exercised in how, where, and when to communicate critical investment information. 

However there are parts of the reporting that can be standardised. I think it is best to look beyond templates and to look to the data itself. One of the things we hope we can accomplish with a more permanent global IPEV is that with the right industry people at the table we develop electronic data exchange standards. Such standards would allow a large portion of this information to be uploaded electronically, rather than having it rekeyed. Global investing is increasingly complex and this will require constant updates to these standards. 

Are there any expected points of contention during the reporting guidelines consultation period?

There haven’t been many disagreements on the drafting committee. Mostly, it is just an awkward type of document to get good collaboration on. It reminds me of a group on vacation working on a grocery list – lots of details and everyone interested in a slightly different set of items on the list. We have spent the most time working through the timing of reporting, how to organise the information (everybody approaches it differently), and trying to determine what information was essential.

There is also the problem of confidential information. Private equity by its nature utilises confidential information. Yet investors need sufficient, timely, comparable, transparent information from their managers to exercise their fiduciary duty in monitoring deployed investment capital. Balancing those things requires disclosure principles and practices that help GPs understand LPs needs and then trying to apply those to the specific list of disclosure items. Overall GPs need to disclose information in a timely manner to build trust with their LPs. Successful GPs tend to err on the side of giving LPs more information rather than less.

For more on IPEV andits valuation guidelines, visit www.privateequityvaluation.com