Institutions launch initiative to standardise private equity reporting
Global institutional investors have joined forces to force private equity managers to implement standardised reporting on fees and performance.
Backed by a number of institutions, investment and reporting professionals and advisers, the Institutional Limited Partners Association (ILPA) launched the ‘Fee Transparency Initiative’ with the view to making private equity reporting uniform.
The ILPA first issued guidance to the private equity industry in 2011 outlining what elements limited partners want in financial reporting.
Investors including Dutch pension fund managers APG and MN are part of the current initiative, which also includes data-comparison company CEM Benchmarking and several US pension funds.
The initiative’s first aim is to design a reporting template that details, for each limited partner investor, how much has been paid in fees, expenses or incentives to managers and their affiliates.
New guidelines from the ILPA will mean investors will be given a “clearer picture” from managers of compensation from portfolio companies and affiliated entities.
ILPA chief executive Peter Freire said investors had more bespoke reporting requirements at a time when managers were adjusting to new regulation, making compliance more difficult.
“It made benchmarking programme costs and net performance more difficult,” he said.
“The ILPA’s members recognise the need for a streamlined and uniform approach that will yield the information required to effectively steward the capital entrusted to them by retirees, governments and academic institutions.”
The initiative will also address the role of third parties – such as administrators, auditors and consultants – in ensuring compliance governing documents, as well as propose best practices on fee and expense reporting.
“Investors believe fees must be appropriate, arm’s length, reasonable and disclosed,” Freire said.
“This effort points to a logical and necessary progression for private equity down the path of becoming a more institutionalised asset class.
“Transparency around fees and expenses is critically important to our members.”
The template, currently in development, will be published for feedback at the end of the month.