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Private Equity Strategies

Tools of the Trade: Service Providers Push For Communications and Reporting Standard in Private Equity

Thursday, December 20, 2012

Data compiled exclusively for Private Equity Strategies by Preqin uncovers recent notable transactions in Brazilian agriculture to date.

By: Bailey McCann
Private Equity Strategies

The way information, reporting and communications are exchanged throughout the alternatives investment landscape is outmoded and often cumbersome.  This is especially true in private equity, where general partners are often making bespoke reports to give to their largest limited partners. The ILPA standards have had limited success in moving standardization forward,  so far.

On the GP side there is support across firms and their vendors for movement to a unified standard. While there are communications guidelines, there is no active, enforceable or verifiable standard for GPs and LPs to follow today. All players including invested entities, administrators, co-investors and fund of funds would benefit from standardization, says Stuart Keeler, of eFront, one of the service providers working in this space. 

He explains in an interview with Private Equity Strategies, that while progress has been made with the likes of ILPA and IPEV, the industry now needs to facilitate their implementation, and extend their scope. That requires the technology community to look for a way to make these guidelines and standardization best practice; otherwise, they risk remaining purely academic concepts.

"If you look back three or four years ago there was a lot of chatter about GPs increasing transparency, some of that happened but we need true standards," Keeler says. "Most of the other areas of the financial industry are regulated and have viable information transfer not just recommendations but in practice."

He advocates for a solution like the SWIFT system used in banking as a means of providing clear-cut communications and reporting between entities.  Movement to a standard like SWIFT would allow GPs to comply with all of their LPs in the same way, saving the additional cost and time of individualized reporting on a per-LP basis.

"GPs are faced with doing ILPA reporting for some investors and customized reporting for others. It's not that the industry isn't trying, but investors need to come together and present a unified voice on what they expect," he says.

Keeler says that when it comes to technology vendors like eFront, not only are they trying to be responsive, but also they have to stay ahead of new regulations in addition to creating bespoke solutions. As the basic compliance burden grows, firms can be distracted from their core mission  or find themselves with significant and not entirely necessary cost outlays driven by being reactive instead of proactive.

"The process is being controlled by large investors and they should outline how they want to get to the next level of efficiency.  We saw this in securities trading with the shift from paper based trading to electronic trading."

"We're on the verge of the industry going to the next level," Keeler says, noting that lessons may be drawn from the implementation of new OTC clearing standards or  other successful standards like IFRS. "Large investors hold the key to transforming the existing approach for sharing information within this industry."

This article was published in Opalesque's Private Equity Strategies our monthly research update on the global private equity landscape including all sectors and market caps.
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