[THOUGHT LEADERSHIP | PEF SERVICES]
Transparency in
investor reporting can
be a differentiator
The surge of capital flowing into illiquid alternative assets highlights the need for transparency
in investor reporting, but this great opportunity also remains one of the greatest challenges for
the private capital markets, says Anne Anquillare, CFA, CEO and president of PEF Services.
Why does the need for transparency still
dominate the conversation around
investor reporting?
Across all investor types, transparency
is one of the most important capabilities
a firm can demonstrate. There is a
prediction of a dramatic increase in
capital flowing into illiquid alternative
assets and those in a position to capitalise
on the influx will be those that are
capable of demonstrating the kind of
transparency that investors are now
demanding.
In the last decade, general
partners (GPs) have done a great
job communicating portfolio-level
information, where investors expect
some diversity. Achieving the right
level of reporting transparency, where
investors expect standards, still
challenges many private equity firms.
The entire industry is maturing and
investors are definitely raising the
bar. Consistently high returns and the
potential for alpha are attracting a wider
range of investors and elevating the
reputation and visibility of the illiquid
alternative asset class as a whole.
Different types of investors are
accustomed to the standards and
reporting that are used by the major
asset classes – which illiquid alternatives
are not at present – but if we want it
to become a major asset class and have
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Global Custodian
Spring 2020
access to all that capital then we need
to have standards, transparency and
reporting.
Without industry-wide adoption and
standards capital flows will be very
asymmetrical. This will make it much
more difficult for smaller, newer fund
managers to enter into the fund market,
and that is the lifeblood of illiquid
alternative assets. We need new rounds of
managers coming in, finding the pockets
of opportunity and really bringing those
outsized returns to our asset class.
Otherwise, this imbalance will increase
the ‘haves’ and ‘have-nots’ making it hard
for new entrants to get into the business
if they can’t easily adopt standards and
transparency in investor reporting. They
will quite simply be shut out of that
capital.
Why do investment firms struggle to meet
those expectations?
At a macro level, the private capital
market as a whole is being held back
by the lack of a consistent standard
of reporting that makes it difficult for
investors to compare performance and
firms within the illiquid asset classes.
It also delays investment in supporting
technology. Not all have the technology to
support effective reporting, for example
connected to data using an investor
portal. For investment firms whose
Anne Anquillare, CFA, CEO and president, PEF Services
accounting systems aren’t configured to
support the new performance reporting
standards, and for those who rely on
spreadsheets as their system of record,
complying with the new transparency
standards can be costly and challenging.
Spreadsheet-based processes are manual