LPs demand better reporting from GPs

Limited partners need appropriate NAV information to effectively report, and getting the right information in a timely manner can be challenging.

One of the biggest concerns on the minds of limited partners these days is getting detailed and timely information about net asset value from their GPs.

Some LPs have had good experiences working with their GPs on reporting, but others have experienced push-back from the fund managers they work with on getting the information they need to meet accounting regulations.

“If you don’t give me the right information, I can’t do my job,” said Anthony Tutrone, head of Neuberger Berman’s alternative investments business, at a conference in New York Wednesday. As part of his role, Tutrone oversees the firm’s private equity funds of funds, and has a perspective as an LP.

“We’re making a lot of progress. We used to get a lot of criticism that we took up too much of the GP’s time … we call now and they say, ‘we’ll send you the package’. We’re not the only ones asking,” he said.

We're in these investments for a long time so information with a balanced view given to us in a condensed version only adds to the communications.

David Chiang

LPs are responsible for ensuring the net asset values they receive from GPs have been calculated using fair value. Those NAVs also need to be calculated very close to the LP’s own reporting date. For this reason, investors in private equity funds are looking for reporting that is current and contains information about the GP’s methodology. In some cases, LPs even want the underlying portfolio company data from GPs so they can perform their own net asset valuations.

GPs have been trying to comply with their LP demands for more detailed reporting. At PEI’s annual CFOs and COOs Forum in New York earlier this month, several private equity and venture capital CFOs said in this tough fundraising climate, maintaining good relationships with existing LPs is so critical they are willing to give their LPs almost any information they ask for, and then personally walk the LP through the data if needed.

Tom Franco, a partner with Clayton Dubilier & Rice, said at the Dow Jones conference that in general, GPs are working harder to meet the reporting demands of their LPs, but in some cases time plays a part in a manager’s ability to get all the information to the investor.

“It’s time intensive and I think that’s why some GPs have been limited in their efforts to serve their LPs,” Franco said.

GPs have the information LPs need for reporting purposes at their fingertips, and so providing the numbers – like monthly EBITDA levels – shouldn’t take too much time, according to David Larsen, a managing director at Duff & Phelps. 

At a roundtable discussion on Thursday, Larsen added that he could see partnership agreements changing in the next five years to require GPs to report within 10 to 20 days of year end – significantly shorter than the current status quo of 90 to 120 days.

LPs would also rather GPs not focus only on the positive side of every investment, but give sober, honest accounts that include analysis of risk.

“We’re all in these investments for a long time so information with a balanced view given to us in a condensed version only adds to the communications,” according to David Chiang, managing director with Wilshire Private Markets, who also spoke at the conference Wednesday. 

Jennifer Harris contributed to this article.