Private equity firms are going to be facing a lot more work to comply with recent guidance from the Financial Accounting Standards Board requiring more rigorous, timely valuation reporting in order to appease their LPs.
The guidance, which was released in June, will require GPs to get their financial reports out to LPs on a much more timely basis than in the past because net asset value information in the reports must be as of the same date as LP financial reports. In the past, many GPs reported on a delayed basis, and many LPs faced difficulties if required to report year-end figures prior to receipt of the year-end fund financials, which typically arrive in April or May of the following year, according to secondaries adviser Cogent Partners.
“The more timely and rigorous a general partner is in its delivery of fair-value-based NAV, the easier it is for the limited partner; the less rigor and less timely, the more work placed on the LP’s shoulder,” according to David Larsen, a managing director with accounting and valuation firm Duff & Phelps. “Because if a general partner is late, if the GP takes all 90 days after year-end and the LP has to report earlier than that, then the LP has to estimate the net asset value as of their financial statement, and that is extra work.”
Earlier reporting may be an adjustment for many firms. Tina St. Pierre, a partner with Landmark Partners, said at a recent conference GPs need to have more consistency in the timeliness of their reporting. Some firms have been better than others at reporting in a timely manner, she said. St. Pierre spoke during the PEI Media Investor Relations and Communications Forum.
All this will mean more work for GPs, but it will save on dealing with complaints from investors down the road, Larsen said.
“A GP that wants to help his LPs must clearly articulate how they have come up with fair value: Do they use a third party? What are their policies and procedures?” Larsen said. “It demonstrates that best practice for general partners is to rigorously determine NAV as quickly as possible, because that will endear them to their limited partners.”