[THOUGHT LEADERSHIP | PEF SERVICES]
and time consuming, and they are
difficult to scale in order to achieve the
depth of reporting required.
There has been an explosion on
available data in the illquid asset class.
What we need are methods to provide
data visualisation and the ability to self-
serve down to the underlying data. The
issue isn’t that we don’t have the data,
we’ve crossed that bridge and firms have
an enormous amount of data, but the
next step is how do we easily convey that
data in a way that investors find useful.
That’s the next step in the evolution of
this industry.
What role would universal reporting
standards play in achieving transparency?
You’ve traditionally had different
industry groups doing their own thing
within the illiquid alternative asset class
and it’s only been in the last few years
that those groups have come together and
realised that we’re all part of this same
illiquid alternative asset class and we’re
still a minority when it comes to the
global portfolio allocation.
It’s important to remember that one
person’s standard is not a industry
standard. Without standards, the
technology solutions cannot develop. It’s
very difficult for a technology provider to
invest in a system when the standards are
in flux; in that case you’re trying to hit a
moving target.
This is where we saw real growth in
the public markets with regards to the
availability of data and how that really
transformed the ability for so many
investors to partake in it. Once the
standards come into play the technology
follows soon behind.
There’s definitely an increased
awareness from many in the industry, not
just the services providers, but the fund
managers, the investors, the associations.
But we’re tired of talking about it and we
want to get something done.
There’s an understanding that the
standards need to work for all sides.
There’s an understanding from the
standard setters that they have to take
into account the ease of implementation
to get to that critical mass of adoption.
Ultimately, the easier it is to implement,
the higher the level of adoption.
What advances have we seen with regards
to standards this year?
The global standards that are
transforming the future for GPs and
LPs are GIPS (Global Investment
Performance Standards) and the ILPA
fees and expenses template. A new
version - 2020 GIPS - was recently
released to improve adoption - especially
among alternative asset firms - simplify
the standards, and reduce compliance
costs.
Its value to the alternative asset
community is evident in the restructured
standards that better represent the
illiquid closed-end group of assets
such as the use of pooled funds versus
composites.
With this revision and broader use of
the standards, advisors are now able to
assess all types of investments—including
real estate and private equity— and start
developing appropriate benchmarks and
more universally available databases.
The GIPS Standards are built on
the framework of fair representation
and full disclosure in an attempt to
provide prospective investors with a
direct comparison when reviewing the
investment performance of potential
asset managers.
Remember that these are standards, not
laws, and there are a few ways to work
towards GIPS compliance. A good place
to start is to understand the framework.
What’s the opportunity for private capital
if they adopt the reporting standards?
Newly developed universal reporting
standards are promising to take private
capital’s most urgent challenge—the lack
of transparency—and solve it once and
for all. And these standards are being
released at a time when investor interest
is soaring higher than ever before.
The convergence of highly motivated
investors and a newly transparent illiquid
investment landscape holds a promise of
unprecedented growth.
While ILPA provides in-depth guidance
on reporting to investors, GIPS offers a
baseline for reporting transparency that
is easily achieved.
If a firm currently doesn’t adhere to
the GIPS or ILPA standards, they should
consider beginning their journey by
aligning their performance reporting
with the GIPS standards. In either case
of GIPS or ILPA, talk to your investors
and determine whether more detailed
reporting is a priority for them.
To position themselves advantageously
during this pivotal moment in the
industry’s development, investment firms
need to take steps now to develop the
processes, capabilities, and technologies
required to adopt these new reporting
standards.
Where would a firm start to comply to
achieve transparency?
We as a firm heavily support the GIPS
- the standard used by all the major
investment asset classes. In the past
illiquid alternatives - especially private
equity - has been excluded from it
because it didn’t fit very well with our
asset class. But with the recent changes
to the standard, one of the goals of the
revision was to increase the adoption
by illiquid alternative assets firms and
investors. They have brought in industry
experts to their working group, in order
to achieve that goal. They are committed
to serving the investor as well as the
investment firm, and what they’ve come
up with is pretty easy to implement.
The argument that private equity
has used in the past was that it wasn’t
relevant and it was too difficult, but now
both of those have gone away.
With more types of investors in the
industry today, investors are placing more
pressure on in-house and outsourced
back-office teams to provide the services
and technology platforms that deliver
greater transparency, visibility and
accountability.
A technology foundation that supports
this reporting is required, whether firms
adopt it in-house or outsource investor
reporting. If it’s the latter, they need a
partner capable of delivering the highest
levels of service and compliance and
one that offers portal technology that
will enhance and streamline investor
communications – more but easier.
We want to see that growth in the
market and we want to help make that
happen by supporting our clients in their
adoption of these standards as well as
providing the technology. It’s great to
have all this data, but if you don’t have
the technology to serve it up in a humane
way with the visualisation as well as the
self-serve then the data itself is not that
useful.
We’re focusing on helping our clients
get to that next level with their investor
reporting, get that access to capital and
really provide that transparency in a very
thoughtful and cool way through the
technology.
Spring 2020
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