Brendan Tyne, managing director in the U.S. for private equity fund administrator Augentius, says new data demands will mean more customization and fewer manual systems.
Editor’s Note: FTF News spoke this week with Brendan Tyne, managing director, New York, of Augentius (U.S.) Inc., a private equity fund administrator, about the changing operational data demands of the private equity business. The new data demands are causing Tyne to declare that the era of the PDF is dead.
Q: How certain are you that the “era of the PDF report is dead?”
A: We are certain that the changes in reporting demands are here to stay. Investors increasingly require tailored reports, in a format that can be automatically downloaded to their own systems.
This will become the norm as LPs start to dig deeper into company-level data across their private equity portfolios. In fact, standardization is only one step in the process to developing more customized solutions.
A very pressing concern for fund managers is the frequency with which investors — and regulators — are demanding reports and the detail that they’re demanding in them.
Another industry survey, which polled more than 200 GPs and LPs across more than 20 countries, reports some GPs receiving more than 9,000 LP inquiries in a single calendar year.
Additionally, it notes the disparity between what LPs want and what they’re actually getting: 90 % of GPs surveyed said that they provide their investors with all the information they need, a reality that less than half of LPs agreed with.
Q: What has changed to cause limited partners (LPs) asking for more data, more frequently from the general partners (GPs)?
A: With more funds than ever raising money — 2,252 globally, according to recent Carlyle data — GPs must differentiate themselves to gain an edge. While financial performance will always be front and center, funds are beginning to see LPs place a premium on operational excellence too.
After high-profile scandals like Madoff, transparency and clarity have become key concerns and investors want to be closer to their investments than ever before. LPs are starting to see the value they can derive from their fund reports by asking for specific data points but according to a recent global EY report on the industry, 66% of investors feel that the transparency of reporting could improve.
Given the nature of private equity investments, gaining full transparency to the underlying portfolio companies is more difficult than, say, a hedge fund investing in publicly traded companies.
Many private equity investors have sizable hedge fund allocations where they are receiving this level of detail from their managers. As such, it is up to the private equity fund managers to gather enough data to provide LPs with a level of comfort that their capital is being invested into safe, understandable businesses.
Without the information available in the public domain, this creates an extra layer of complexity for the GPs to address with their LPs.
Q: What manual processes and systems will the most difficult to automate?
Private companies and real assets are inherently harder to value than public ones.
Private companies may also have issues with disclosing their underlying valuations to the general public as they often hold these as trade secrets. Those aren’t new issues, but they potentially throw a kink into the kind of rapid, streamlined data demands that are increasingly in demand.
Also, the forecasting and investment philosophy can’t be broken down into easily crunchable data points because it has a lot to do with the way a group of general partners views the shape of things to come and the faith they have in any one given sector or industry.
While GPs are going to have definite investment targets that they need to detail to their LPs and goals they need to reach to keep the LPs happy, explaining who they are and what kinds of investments they focus on are not always so easily put into downloadable data points.
Q: What technologies will facilitate greater access to data?
We use SunGard Investran as our core accounting system across all locations. Investran has a firmly established reputation as the leading accounting technology for the industry.
But Sungard is not alone and the accounting software market is a vibrant one. New technologies and versions are coming online and this is going to continue and a chief component of any program is going to be the ability for different authorized parties to access and distribute data.
Q: How will greater and more frequent access to private equity-related data change the business dynamic between GPs and LPs?
The relationship will become more and more data-driven, whereas in the past a lot more was riding on the personal relationships between the GPs and their LP investors.
As this customized trend continues, and as LPs develop individual preferences as to how their fund data is broken down, GPs will be faced with a huge range of different requests, all of which require time and attention.
That care and attention, of course, distracts GPs from their core business of deriving value from their investments. Without a function — either outsourced or in-house — that has the time and resources to tailor reporting to individual investors, GPs will lose a key element of differentiation against their competition.
Q: How does Augentius view the work of the private equity data standards group, the AltExchange Alliance?
We welcome efforts to set standards for data reporting as much as possible and increasing access to regulatory information.
We do so with the caveat that limited partners are not monolithic and are going to have different data needs at different times, so things will often be in a constant state of flux as far as how information is delivered and used.
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