Fund of funds managers are faced with the complex task of collecting data on all of the funds in which they are invested and then distributing reports to investors in their own funds. Ray Maxwell, general partner at Invesco Private Capital explains how the firm avoids a potential logistical nightmare. Maxwell: need to be selective when reporting on funds of funds
How many funds are you invested in?
As a group, we’re invested in about 380 funds.
How many investors do you have in your own funds?
I don’t have exact figures but it a big number. Most of it is done in the US, where there are a lot of employee funds as well as limited partners. I’d say that it is well over 100 limited partners.
It is complex, but we have quite a lot of resources aimed at our financial reporting. There is a lot of hands-on work to make sure that the data is correct and that it has gone into the fund. We also have to make sure that we report back to investors in a timely and accurate fashion.
Is the reporting process for your funds separate from the fund of funds reports?
We have separate vehicles for the different activities. For the venture funds, they are clearly demarcated from the funds of funds. But the funds of funds themselves and what we call direct funds are both set up in Delaware limited partnerships – that is to say, each entity is an entity in its own right, whether it be a fund of funds or a venture fund and each has its own reporting requirement and a different number of people to whom we are reporting.
Is there an obvious difference in the way funds of funds are reported on in comparison to your own direct investment funds?
They are, by their very nature, quite different. In the case of direct funds, we report on every investment. With fund of funds, we just highlight the most significant investments. With a portfolio of, say, 40 funds you will have around 400 underlying investments. So it would be like the equivalent of delivering the Encyclopaedia Britannica every quarter, so you have to be selective.
Do you handle some/all of this in-house or do you outsource some/all of it?
We’ve never outsourced any of it. We do all of it in-house. We probably have about 10 to 15 people who deal with it, but that it also combined with the finance side.
How regularly do you expect reports and in what format?
We expect reports every quarter, but we don’t necessarily specify a method. We merely request that the reports have to be with us within three months of the end of the quarter. They come in in a whole variety of formats; every one is different. It can really be a mixture of things, such as email, websites or paper reports. It’s not really complicated, though, as we monitor what we get and always check to see if something is available in other media if we haven’t received reports in the expected format. If we don’t get it at all, we will get back to the fund manager and get them to supply the data.
In the US, there tends to be a lot more standardisation than there is in Europe. In the US, there is normally an individual capital account for each investor, which you don’t always get in European partnerships, so you just have to calculate it yourself.
How regularly do you distribute reports and in what format?
We distribute reports on a quarterly basis in both web and paper format. In terms of the intranet, we have had that for a couple of years and it’s an essential part of how we report.
What would make reporting easier?
I think that there are always ways in which you can refine your approach, but the information is ultimately subject to the ways in which the funds are structured and so you have to live with the situation as you find it.
Have you invested in any other measures (extra staff, training etc.) to deal with these issues?
We have mainly focused on getting people who are highly qualified and we have put a lot of physical resources and investment in our own AMS (Accounting Management System). We actually invested about $2 million dollars in our own bespoke AIS back in 1996.
Maxwell: need to be selective when reporting on funds of funds
This interview originally appeared in Private Equity International’s June supplement, The Fund Administration & Technology Compendium 2006.