Transparency as a differentiator as global pandemic continues

Investor demand for transparency has always been in place, but thanks to COVID-19 it may just be the best way to keep limited partners satisfied with their capital commitments, according to findings of recent industry research.

It the ongoing tug of war between investors and managers over information, transparency seems to be once again a selling point for general partners.

“The way you communicate with your LPs during uncertain times will shape their perception of the relationship for years to come and have a direct impact on your next fundraise,” said Anne Anquillare, CEO and president of fund administrator PEF Services.

She added that investor communications and reporting are critical capabilities during a downturn, but that they also hold the key to success as private market strategies gain from the inevitable upturn.

In a new white paper from PEF, they urge general partners to communicate more frequently with clients during the downturn.

Managers should communicate in areas such as portfolio liquidity and valuations and metrics, according to PEF. The firm found in a flash poll completed in the first 30 days of the pandemic that nearly half (49%) of general partners reported a higher frequency of calls, especially from investors.

General partners are also are recognizing the issue of standardized reporting, as PEF said that the number of managers that ranked investor reporting among their top priorities grew from 11% in 2018 to 24% in 2019.

The standards created by the Institutional Limited Partner Association had also been a key player in driving greater transparency in private equity markets. According to PEF, one in three managers currently rely on ILPA reporting Portco Template.

Besides industry templates, other service providers are promoting transparency in the valuation process. Ross Hostetter of Duff & Phelps recently outlined his firm’s private company valuation methodology in an Alternatives Watch interview.

Still, going into the pandemic, private equity limited partners seemed satisfied with the transparency they were receiving, according to Coller Capital.

The London-based firm is active in the private equity secondaries market and closed its Coller International Partners VII with capital commitments of $7.15 billion in late 2015.

In a survey conducted in February and March, Coller Capital found that most limited partners are increasingly satisfied with the transparency of their private equity managers as they parse out emerging portfolio risks.

The team surveyed 107 private equity investors from around the world and found that four out of five limited partners were satisfied with their private equity fund managers’ level of transparency. A little over a decade ago at the height of the financial crisis only two out of five LPs were satisfied.

Back at PEF, they are advising clients to think about how much additional information can be added to reports in the immediate future in order to get a consensus on what can be added over the longer term.

In the flash poll they conducted, officials found that only 24% of GPs plan on enhancing first-quarter reporting packages, while more said they planned on prioritizing valuations following the start of the pandemic.

“Past crises have galvanized the private capital markets to strengthen their processes and mature their operations,” PEF officials added in the white paper. “The downturn will have the same impact, as GPs fast-track the development of capabilities and adoption of technologies that enable them to provide the transparency that LPs demand during times of uncertainty.”