Vistra on responding to reporting challenges

GPs are receiving unprecedented levels of demand for data from LPs, as well as an uptick in reporting requests, say Caroline Baker and Scott Kraemer of Vistra

This article is sponsored by Vistra.

How would you describe the data and reporting challenge facing PE managers?

Scott Kraemer, Vistra

Scott Kraemer: For private equity, the challenge is simply more and more requirements and requests for more and more specificity and transparency, all moving forward at an increasingly rapid pace.

This is exceptionally difficult for GPs, coming from both investors and regulators in the form of legislation and published standards from certain investor bases, like the Institutional Limited Partners Association. We’re seeing more requests for Global Industry Classification Standards segments, industry codes and descriptions, as well as return type calculations and countless unofficial requests for information and more frequent reporting. Large institutional investors are also asking GPs for more regular sit-down meetings to talk about data reporting.

Caroline Baker: In Asia we see the same demands for more granular data and more focus on managing the risk base. LPs want to talk about operational processes, decision-making processes and how data is being collected, and they want to see that data.

A few years ago, most investors were focused on performance and when they were getting paid. Now they want insights on current performance, past performance and what portfolio companies are going to be doing in the near term, plus they want the detail of every calculation behind the numbers to be available to them.

How do these challenges vary between the US and Asia?

Caroline Baker, Vistra

CB: Asia is typically a few years behind the US and Europe on regulatory standards. Asia doesn’t have anything like the EU’s Sustainable Finance Disclosure Regulation, for example, and there is no body like the EU looking at consolidating that information across various jurisdictions. Likewise, the US Securities and Exchange Commission recently put out new regulations for private funds that require additional data, and we have not seen that in Asia yet.

When you are collating the granular level of data that funds need from portfolio companies, there are real consistency and language issues for pan-Asia funds, which impact the ability to collect that data in a timely fashion.

SK: A lot of countries are accepting either the International Financial Reporting Standards or the US Generally Accepted Accounting Principles as their primary reporting standard, but many cross-border funds are reporting to local country standards as well. That double level didn’t happen nearly as frequently in the past and it is a challenge.

Finally, there is a lot of work that now needs to go into getting regulatory approval to share data across different jurisdictions efficiently, which is challenging, especially for administrators and providers that are less globally experienced and physically present.

What lessons have managers learned about data and reporting, and what best practice is emerging?

SK: GPs have learned that they can’t solely rely on their providers; they have a responsibility to be sure their information is accurate and timely. There has been this push towards a diversification of providers, particularly for the bigger managers active across multiple asset classes, which was meant to be a risk mitigant.

In fact, the implication of that can be a lot of additional operational and technology-related expense, with the manager responsible for pulling, consolidating and/or reporting data from multiple providers. GPs are now moving towards having just one or two providers where possible.

CB: We haven’t necessarily seen best practice emerging in Asia yet, other than the ILPA guidelines, which are being followed in a much wider way than perhaps originally intended. A lot of fund managers have ended up with so many service providers in different jurisdictions and different asset classes that they have faced deep challenges from a risk management perspective.

With the complexity of reporting requirements, what can managers do to limit the impact on investors?

CB: Fund managers need to focus on what they are good at, and work with providers that can give them data across multiple jurisdictions and provide helpful insights on the back of that. We have spent years developing technology that pulls in data and slices and dices it for investors – that is not something managers can easily replicate.

SK: If you are working with one provider, trying to minimise your requests for customisation is important. There is no reason to have four different versions of a capital statement; try to use global standards for reporting and then let your administrator do the work.

How can fund administrators help enhance the accessibility of data for both GPs and LPs?

SK: Due diligence is important to make sure an administrator has all the capabilities you need, as well as internal control audits. Seeing examples of life-to-date calculations for investments or fund level returns can help GPs and LPs understand how calculations are being done from data capture to reporting. This can help GPs and investors get comfortable that administrators are doing the right things, and providing the right data and reports.

CB: For a fund administrator to help both GPs and LPs it is important to put data at their fingertips so that they can manipulate information and pull reports in the most useful way possible. It is about understanding at the outset what the GP and the LP want, which is always evolving, and then making sure everyone is clear on how the administrator can deliver that.

On cybersecurity, the big fund administrators have a real edge because we invest huge amounts of money in cybersecurity across multiple jurisdictions. We have experienced teams and the ability to invest in the latest technology to constantly evolve in response to the latest cyber-threats.

What will be the big themes in data and reporting in 2023 and beyond?

CB: When it comes to big themes, we cannot ignore ESG. The data requirement for proper ESG reporting is never-ending, so it is about what level you are going to take it to, whether that’s portfolio company level or digging down into every office of every portfolio company. Working with someone who is thinking about the next steps on ESG today means really focusing on emerging frameworks: at some point there will be more focus, more consistency and more international guidelines, but right now we are still at the beginning of that journey.

SK: In addition to more ESG reporting, the big themes will be around the growing requirements of GDPR, advances on cryptocurrencies in the fund administration space – where regulations are changing all the time – and then economic substance, where the rules also continue to evolve all over the world. An administrator needs to be on top of these issues to make sure managers can remain compliant.

Caroline Baker is managing director for Southeast Asia at Vistra and Scott Kraemer is managing director of alternative investments, North America