By Anne Anquillare, Chief Executive Officer & President, PEF Services LLC

Two world trends are converging on our industry – business intelligence (BI)/data driven decision making and the dramatic expansion of investment assets under management.

In their Asset & Wealth Management Revolution report, PwC predicts that global assets under management will rise to $145.4 trillion by 2025, doubling the amount from 2016.  The active management portion of the industry is expected to decline during this time from 71% to just 60%.

However, even as active strategies decline in general, the alternative portion is still expected to expand from 12% to 15% of the total assets under management, from $10T in 2016 to $21T in 2025. But this dramatic increase in supply will not alleviate competitive pressures as even today we hear the stories about the “haves and have nots” in fundraising. 

Which brings us to the other trend, business intelligence and data driven decisions. We have all heard a lot about the impact of BI tools and their influence on decision making in other industries. With the advent of better systems at both GP and LP levels – the ability to provide transparency is in reach.

So the next step is to provide the information in the form of Business Intelligence tools to enable more data driven decision making in our own industry. This will ensure those firms that have the “goods” will get their fair share of a growing pie.

ARE YOU READY?

So, where do you start? For GPs, elevating and standardizing performance reporting will be the key to attracting capital and staying competitive. For LPs, access to this data or performance data will be essential to the ability to make better decisions, justify those decision to investment boards, and, ultimately, optimize returns.

As a GP, you need to provide robust performance reporting (all the time, not just when you are fundraising) with access to supporting data that ties to investor reporting. This will build your reputation and trust with investors and impact your fundraising abilities in both the short term and long term. Standards are converging. Technology is supporting the effort. The data is available – we are running out of excuses.

The downside is if, as an industry, we don’t make this transition, the prediction of our growth will be overestimated and alternatives will not maintain its place in the overall global asset management industry. People are already wondering if hedge funds, as a stand alone asset class, will be around in 2025. The downside for your firm if it doesn’t make this transition is less dramatic, but still impactful for you.

INDUSTRY COMPLIANCE STANDARDS

ILPA 

With more than 400 member institutions representing over US$1 trillion of invested capital, the Institutional Limited Partners Association (ILPA), is dedicated exclusively to promoting transparency and alignment of interests between private equity investors (LPs) and the managers with whom they invest (GPs).

To date, in addition to best practice guidelines, ILPA has launched three templates: 

  • Capital call and distribution notice (2012) 
  • Fee reporting (2016) 
  • Portfolio company metrics (2018) 

Through the ILPA Reporting Template for reporting fees, expenses and carried interest, ILPA establishes consistent standards for fee reporting and compliance among private equity investors, fund managers and their advisors.

The purpose of the template is to encourage uniformity in these disclosures, both to provide LPs with an improved baseline of information to streamline analysis and drive decision making, and to reduce the compliance burden on general partners being asked to report through a range of disparate formats from LPs. ILPA believes that a template, rather than reporting guidelines, will facilitate technology and third party solutions that could accelerate implementation and deliver on the promise of efficiencies and economies of scale.

For more information on the Reporting Template, visit ILPA.org or contact ilpaprinciples@ilpa.org.

2020 GIPS®

In 1999, the Board of Governors of the CFA Institute, the global association of investment management professionals, approved the Global Investment Performance Standards (GIPS®) to replace regional performance standards with a single, international version capable of covering all asset classes worldwide.

A new version—2020 GIPS® Standards—was recently released and will go into effect on January 1, 2020.

The main goals of the 2020 GIPS Standards are to improve adoption (especially among alternative asset firms), simplify the standards, and reduce compliance costs. Its value to the alternative asset community is evident in the restructured standards that better represent illiquid closed-end assets, such as the use of pooled funds vs. composites. With this revision and broader use of the standards, advisors are now able to assess all types of investments—including real estate and private equity—against an appropriate benchmark.

With the advent of better systems at both GP and LP levels, the ability to provide transparency is within reach.  The GIPS standards represent an important step forward in providing the performance standards framework needed to allow PE to get their full share from institutional investors worldwide and to offer full transparency of investment performance.  Learn more here 2020 GIPS® Standards.  And, read more about GIPS® Standards for Firms.

To learn more about Performance Reporting, read this white paper, The New Era in Performance Reporting.