Taking on GIPS

How have AXA's finance and administrative functions evolved since you joined the private equity group?
There has been a significant evolution between the beginning of activities at AXA Private Equity and now. Atthe outset, there were no industry guidelines for our activities; since then, the guidelines have become nearly as organized as for companies on quoted markets. As a consequence, AXAPrivate Equity's administration and finance department has grown from two professionals in 2000 to more than 12 permanent professionals on our present team.

What is your highest priority regarding AXA's finance and administrative functions, and how has the firm's decision to adopt GIPS standards facilitated this priority?
Our major priority is reporting to the client. AXAPrivate Equity, before becoming GIPS compliant, already had a fairly advanced and developed system for reporting to and supporting its clients. This reporting system was already fully compliant with EVCA (European Venture Capital Association) and AFIC (the French Venture Capital Association) guidelines, but those reports were not certified by auditors.

Our financial department was working with the clientrelations departmentin order to improve communication with clients, and when the GIPS applicable to private equity were published in 2004, we decided to adopt those guidelines because itwould add value for our clients. We implemented the project beginning in January 2005.

What process did AXA undergo to become GIPS compliant, and what resources did you consult?
We had to identify precisely the requirements of the GIPS rules, and if they could be practically implemented. We also identified the number of funds under AXA management that were concerned by this reporting. There were about 20 funds – direct funds and fund of funds – in all, and we defined the content and the form of the reporting we were expected to produce annually. I think we attempted to adhere very precisely with the guidelines of GIPS, and we ensured that this reporting was fully compliant with the rules and requirements of GIPS. Itwas approved by the auditors, and then we worked on that project for two months in order to implement it from beginning to end. We worked with and asked advice of the auditors, PricewaterhouseCoopers, but there were no other parties involved.

What challenges did you face in adopting GIPS?
This work was not easy to do because it meantwe had to go back to figures since 1997. Fortunately, we were well organized and had very precise figures of each cash flow of the funds, so itwas quite easy to obtain the data to analyze for each year since the inception of the funds. It was not so much challenging as itwas just a lot of work.

Going forward, how do you see compliance with GIPS impacting the amount of work for AXA's administrative and finance department?
Now that the pastperformance has been reviewed for the GIPS standards, it will be easy to keep on adhering to them in the future. On a day to day basis, it should not create more paperwork, and we will not need additional administrative support.

How does being GIPS compliant provide AXA Private Equity with a competitive edge?
Our adherence to GIPS standards is an advantage because when investors and potential clients look at our reporting, they can be sure that the figures have been certified by auditors, and that the reporting is characterized by accuracy, consistency, and transparency. This reporting will now be employed during fundraising, and it will also be useful for our clients when they want to compare the performance of funds across different management companies which are GIPS certified, or to compare the global performance of a management team within the same investment strategy activity through comparisons of different portfolio composites. Being GIPS compliant is a way of reporting that is very clear, very technical, and useful for both parties.

Among your peers in France and the restof Europe, do you sense that they are moving forward to adopt these standards as well?
Because there are no other rules on certified performance reporting or alternatives to GIPS right now on the market, we think we will observe more private equity companies adopting GIPS rules.

Overall, would you recommend adopting GIPS?
Of course, yes, we would recommend adopting GIPS. The GIPS standard is not something different that should replace EVCA and AFIC guidelines; it is something thatcomplements these guidelines. For a management company, it would be best to respectEVCA and AFIC guidelines and also conform to GIPS reporting.