In today’s era of transparency, investors are requesting more information and more often. Assuming limited resources at the firm, how can a small back office team cope?
John Lambrech’s answer:
It’s imperative to have a process in place to handle these requests in a timely and efficient manner, and in a way that you are satisfying investors’ needs. We have established a process whereby all requests get sent to a centralized mailbox that everyone on my team has access to. I’ll assign that request to one of my staff depending on the nature of the request to get going on before it gets run back up to me.
I find that there is a bit of an 80-20 rule, where 80 percent of the requests are fairly routine questions that many LPs ask. As you may imagine, prior responses usually can be repurposed or modified without much burden. It’s the 20 percent one-off requests that often take 80 percent of the time to answer. If it’s a routine request my staff may answer it directly for efficiency. However, if a little bit more thought needs to be done or some explanation or commentary needs to be included then it will come back up to me for editing. It’s important to have such a process as you don’t want anything to slip through the cracks which can happen with requests coming in to different people. Most private equity firms are not operating a large call center-type structure where there are automated logs or recorded phone calls and things like that.
As to timing, responding is a bit ad hoc. Every request is different. For the more routine requests we typically like to get back to people within 24 hours. Regardless, we always try to at least acknowledge the request immediately so that people don’t feel that it went into a black hole. A lot of these data request are blasted out to all GPs so we make sure we are responding to the request so that at least the people asking know we received it and are working on it. It never hurts to ask the LPs for their time needs/expectancy, i.e. do you need it today, tomorrow? And I think LPs like that, they want to know their requests are receiving attention and most LPs are very reasonable, they don’t expect that some of these bigger requests get turned around in a matter of hours but a day or two or even a week is often acceptable.
Of course you can’t answer every question an LP asks. More and more, requests are for underlying information on the portfolio companies. While most GPs in their quarterly reports will provide some level of disclosure it is not typically down to the nitty gritty detail. A lot of LPs are tracking these portfolio companies in their own systems and want more specific operating data. Here, there are a number of considerations you need to be mindful of when disclosing portfolio company information. Is it material non-public information? Are your underlying investors subject to the Freedom of Information Act (FOIA) where the information might get out? What is your relationship like with your portfolio company? Do you have consent to share this information? It’s a real “facts and circumstances” case. If you acknowledge the request and provide what you can and then certainly provide an explanation as to why a piece of information is sensitive and can’t be sent out, by and large that has not been an issue for us. I have found that picking up the phone and verbally walking through some of the requests is usually well-received by investors.