Insights

As the private equity (PE) industry has matured, fund structures and reporting have evolved to keep pace with the increased sophistication of Limited Partners (LPs)...

1. Increased Transparency: PE funds have increased the level of transparency in their reporting to meet the growing demand for more information from LPs. This includes providing detailed information on fees, expenses, and performance, as well as regular reports on portfolio company performance.
2. Improved Data Management: PE funds have improved their data management processes to ensure accurate and consistent reporting. This includes using technology to automate processes and manage large amounts of data, and implementing more rigorous internal controls to ensure data accuracy.
3. Greater Investment Detail: PE funds have increased the level of detail provided in their reporting to give LPs a more comprehensive understanding of their investments. This includes providing information on specific portfolio companies, their performance, and their risk profile.
4. Enhanced Communication: PE funds have also enhanced their communication with LPs to improve the exchange of information and build trust. This includes regular meetings and webinars, and the use of online portals to provide real-time access to financial and performance information.
5. Alternative Fund Structures: PE funds have also experimented with alternative fund structures, such as co-investment vehicles and separate accounts, to better meet the needs of LPs. These structures provide LPs with greater control over their investments and offer a more tailored investment experience.

In conclusion, as the PE industry has matured, fund structures and reporting have evolved to meet the growing demands of LPs. These changes have helped to increase transparency, improve data management, and enhance communication between PE funds and their LPs.

Gen II Expert Response:

As PE reporting has matured, transparency into underlying investments, data management, and overall communication have improved significantly. One area to highlight is the use of online portals to obtain real-time access to information. About 20 years ago, a 90-day lag in quarterly reporting was not uncommon - even for non-Fund of Funds - and an LP received that information via regular mail, fax, or email. The implementation of online LP portals has not only increased the security and protection of LP information but has also facilitated more timely information and the industry continues to trend in this direction. The core of an LP portal is having reliable data on a timely basis and then having the technology to transform that data into meaningful information for LPs. Gen II’s Sensr® reporting platform allows us to provide our clients and investors with the information they need when they need it.

Fund structures have continued to evolve and become more complex over the years to meet the increased demand and sophistication from LPs. Tax, legal, and reporting ramifications are the main drivers that we generally see. On the tax side, investors have become increasingly familiar with the tax ramifications of their PE investments and are requiring structures that fit their needs. Whether it’s blocking ECI and obtaining treaty benefits on FDAP income for foreign investors, blocking UBTI for tax-exempts, or a myriad of other reasons, the structures of PE funds have become much more complex to make them the most tax efficient for investors and minimize risk. We have also seen an increase in the complexity of structures for various legal reasons, generally to help facilitate the purchase of certain investments or to allow investors to participate in certain fund structures based on their local laws and regulations. We’ve also seen an increase in Series and Tranches within fund structures to accommodate the increased desire from LPs to track performance and vintages.

As a pioneer within the fund administration industry, Gen II has played a key role in the evolution of reporting and fund structuring, and our commitment to continually learning and improving will keep us on the cutting edge as the industry continues to evolve.