PE firms would upgrade and tighten their valuation process as a first step in achieving transparency
WEST ORANGE, NJ (May 5, 2020)—PEF Services, a leading fund administrator for Alternative Investment Managers, today released insights into investor transparency visibility and the Q1 valuation process for Illiquid Alternative Assets based upon polling of 150 financial professionals including members of the FEA (Financial Executives Alliance.)
The polling shows that, as a result of this current financial crisis, investor confidence has been shaken. Valuations may take a significant hit, and exits are uncertain. All eyes are on investor reporting and communications.
PEF Services and the FEA hosted a webinar entitled “Investor Transparency as a Differentiator: Managing LP Relationships in Uncertain Times” on April 13, 2020.
Considering the impact of current market conditions, the webinar underscored the need for investor transparency in capital activity, reporting and issues related to valuations during these uncertain times. If done right, investor transparency will maintain and possibly enhance the trust between firms and their investors.
During the webinar, attendees responded to the following polling questions. Highlights of the results follow:
- How has the requests for information about upcoming capital activity changed over last 30 days?
70% of respondents indicated that more investors are asking for the first time and those that have asked in the past are asking more often.
- What do you think will be the most pressing information for investors for the next few quarters?
While 22% indicated ‘capital activity forecast’ as the most pressing information going forward, 43% of respondents indicated that a combination of capital activity forecast, forecast for impact on PCAPs/NAV, detailed information on watch list companies, status and expectations for deal pipeline and the impact on management company (furloughs, PPP applications, etc.) would all factor in to information requested by investors in the next few quarters.
- From a fund NAV [net asset value] perspective, how much of a change would you expect to see from 12/31/2019, when 03/31/2020 NAVs are reported?
Respondents revealed that 16% expect NAV will decrease by more than 20%; 15% expect it will decrease between 16% and 20%; and 28% expect NAV will decrease between 11% and 15%.
As a point of comparison, the same question addressed to attendees of an ACA and PEF Performance Trends for Alternative Structures webinar on April 23, 2020 revealed that 3% expect NAV will decrease by more than 20%; 19% expect it will decrease between 16% and 20%; and 27% expect NAV will decrease between 11% and 15%.
- For funds in the market, what is happening to your fundraising process?
40% indicated that they are not in market while 33% noted that ‘we/placement agent reached out to investors and institutions are on track but others are delayed.’
- If you had to pick one, where have you started / would you start in improving transparency?
28% indicated that would start by providing capital activity forecasts; 25% indicated that they would add to their first quarter reporting package; and 36% indicated that they would upgrade their valuation process and let everyone in the firm know that the process has to be much tighter.
An influx of capital is flowing into the Illiquid Alternative Asset class yet this asset class lags with standards and reporting. Performance plus transparency equals access to capital.
“In your next fund raise, every LP is going to ask how you handled this crisis. They will look at your valuation process and documents with 20/20 hindsight,” said Anne Anquillare, CFA, CEO and President, PEF Services LLC. “The game changers lie in demonstrating greater transparency, visibility and accountability.”
Now more than ever, reporting standards such as 2020 GIPS® and ILPA are playing a pivotal role in achieving transparency. Investor portal technology also plays a key role in providing effective, secure and transparent reporting.
“One investor’s ‘standard’ is not a standard,” commented Hank Boggio, Senior Managing Director and Chief Revenue Officer, PEF Services LLC. “As a major asset class, illiquid alternative investments need to have consistent standards, adoption and scalable technology solutions.”
View the full webinar, Investor Transparency as a Differentiator: Managing LP Relationships in Uncertain Times.
About PEF Services LLC
PEF Services is the new standard in providing high-value, high-touch Fund Administration services and technology solutions that elevate operational performance to drive and support sustainable growth. Supported by senior professionals with extensive experience in alternative investments, PEF has a track record of nearly 20 years in delivering cost-effective, best-in-class solutions to Funds and General Partnerships, including Buyout, Venture, Emerging Managers, Real Estate, Debt, Fund of Funds, Co-investment, SPVs and SBICs. Additionally, the firm’s LP Administration Solutions Group focuses solely on meeting the unique administration and data needs of limited partners investing in illiquid alternative assets. PEF’s ViewPoint™ provides clients with a purpose-built portal that delivers greater visibility and real-time access to underlying investment performance data sourced directly from the official books and records of the fund. In partnering with PEF, firms increase operational efficiency, control operating costs, improve focus on core capabilities, and gain access to experts in private capital back office operations. For more information please visit https://www.pefservices.com/.