Slow but steady wins the race?

LPs and GPs aren’t leaping on ILPA’s standardized fee-reporting template, but its backers don't think it’s a hare-brained scheme

The uptake of the Institutional Limited Partners’ Association’s fee-reporting template has been “disappointing,” according to an advisor to the California Public Employees’ Retirement System. “The overall lack of traction is disappointing to supporters of the template such as Pension Consulting Alliance,” PCA wrote in its second half 2016 private equity performance report for the LP.

The investment consultant said the slowdown came despite the template being embraced early on by large firms across the US, such as Boston-based Advent International, Fort Worth’s TPG and Silver Lake, which is headquartered in San Francisco.

A panelist at Private Equity International’s CFOs and COOs Forum in January echoed that sentiment, adding his firm has been adopting the ILPA template as a consistent standard with limited success because full integration will take time.

In an email to pfm, CalPERS supports PCA’s statement and reiterates that the overall industry adoption of the template has slumped in recent months. But it adds ILPA is working to improve this by active communication and seems optimistic about the template’s future.

“CalPERS has seen a steady increase in both the strategic funds who are providing the template, as well as the legacy funds. To date, over three-quarters of the collectible universe [has] provided the template [in their reports].”
Making progress

ILPA unveiled the template in February 2016 in a move toward increased standardization and transparency between limited partners and fund managers in private equity. The template had added new sections such as general partner compensation and clawback obligations to the association’s existing quarterly reporting standards.

Now, a little over a year since its release, and the industry has seen a rise in efforts around standardization. At press time, nine GPs and 58 LPs had endorsed the template, according to the ILPA website.

“We’re exactly where we thought we would be,” ILPA managing director of industry affairs Jennifer Choi tells pfm. “If you go back to a lot of the commentary around the time of the release of the template, we were saying we expected a one- to two-year trajectory for the beginning of the implementation on the part of GPs, and that’s what we’re seeing.”

She adds that, of the GPs that endorsed the template early on, many have begun including it in data-reporting packages shared with their LPs. For most GPs, it’s a matter of determining how quickly and accurately they can incorporate the elements of the template into their reporting procedures.

“We expect we’ll have more endorsements in 2017,” she says. “GPs have been going through internal processes to evaluate their ability to comply with the template, in consideration of the demand from LPs.”

And to think that the template is being largely ignored or neglected by the industry based on the number of GP endorsements is inaccurate, according to Choi. An endorsement of the template is a public commitment to provide all data in the template to all LPs, so it may just be a matter of scale and time for each GP to reach that level.
“The fact that a GP has not endorsed [the template] does not mean they’re not providing those data to LPs,” she says. “We’re aware of a number of GPs who have begun to provide that information.”

Joncarlo Mark, founder of registered investment advisor Upwelling Capital Group in California, also sees activity with the ILPA template one wouldn’t notice based on the endorsement list.
“What you see people doing is, certain LPs are saying, ‘We need this information,’ so GPs are responding to the LP needs,” Mark says. “They’re actually taking action behind the scenes, rather than going to the ILPA website and signing up.”

Mark, who also attended PEI’s CFOs and COOs Forum, points to a poll there that showed 60 percent of the attendees were using the ILPA template or a modified version of it.

“If you think about this, in January 2016 the ILPA template didn’t exist,” he says. “A year later, a majority of the people in that room [at the Forum] were using it or using a modified version. I think that’s progress.”

As an example, San Francisco-based FTV Capital, which has raised $2.7 billion, is not an official sponsor of the template but has been actively using it.

FTV partner in business development and investor relations Karen Derr Gilbert tells pfm her firm has adopted the ILPA template as part of its effort to be highly transparent with its LPs.

“Our investor reports incorporate best practices recommended by ILPA,” Gilbert says. “When our LPs ask if we would speak with their other GPs about our investor reporting, we’re happy to share how we structure our reports to provide comprehensive and transparent data to our LPs.”

She has seen an increase in the amount of LP due diligence, noting it has jumped between 2014, when FTV closed FTV IV on $700 million, and last fall, when the firm closed its fifth fund on $850 million.

However, thanks to the ILPA template, GPs shouldn’t find it difficult to share information with their LPs in the name of transparency, she says. ?

Rise of the machines

It’s not as simple as filling in a template; Mark reports some LPs want Excel documents, while others want PDFs. It’s not a case of one size fits all.

“The asset class is too big these days for us to not have an organized way of reporting,” he says. “Without it, you have one GP reporting data one way and another reporting it another way, which creates confusion.”

Several organizations have developed automated reporting systems to support firms in meeting the template requirements. In January, Citco launched a web-based ILPA template to automate expense reporting, and US-based fund administrator Gen II introduced a template tool that integrates a specialist alternative asset fund administration platform from DTCC, a US compliance technology platform.

Mark’s firm is a founding member of AltExchange, which offers a digital format for the ILPA template reporting and whose board of directors includes ILPA’s Choi.

“We need LPs, GPs and fund administrators to make the proper investments in technology so the information can flow much more seamlessly,” Mark says. “I don’t think LPs are going to be asking for less; they will just start asking for information much more systemically.”