ILPA’s Updated Reporting Template: Great in theory, but will it be adopted?
AUTHOR: Kyle Rose
Background
On January 21, The Institutional Limited Partners Association (ILPA) released version 2.0 of its Reporting Template for Fees, Expenses, & Carried Interest with a stated intention to promote more uniform reporting practices in the PE industry related to fees, expenses and carried interest. This template serves as a refresh to the original reporting template released in 2016 and comes after a 2024 public comment period through October 11th.
This reporting template serves as a subset of the broader effort by ILPA to standardize Quarterly Reporting Standards related to expectations, models, and templates for the communication of quantitative and qualitative updates from General Partners (GPs) to Limited Partners (LPs). The full contents of the recommended quarterly reporting package, originally released in 2011, are as follows:
- Summary Management Discussion and Analysis Letter
- Financial Package
- Balance Sheet
- Period End Schedule of Investments
- Statement of Operations
- Statement of Cash Flows
- Appropriate Footnote Disclosures
- Supplemental Management Reports
- Executive Summary Firm and Fund Level
- Supplemental Schedule of Investments
- Portfolio Company Update (one for each active portfolio company)
- Reporting Template for Fees, Expenses, & Carried Interest
Our Take
Clockwork was born from a belief that enhanced transparency between GPs and their LPs generates more positive investment outcomes. To the detriment of investors, this transparency has been sorely lacking in the traditional fund context. There are exceptions, as larger funds tend to have the experience, capacity, and frameworks in place to provide more substantial and regular reporting packets to their investors (and institutional investors tend to demand more from their larger holdings). However, much of the market comprises smaller and emerging managers who do not have the staff or budget to devote to comprehensive reporting and are not expected to do so by their less-sophisticated investor base.
It should then come as no surprise that we at Clockwork favor efforts to standardize and streamline investor communications. Having seen firsthand how many LPs are resigned to receiving only annual financials, capital statements, and a quarterly investor letter (if they’re lucky), we know that the wild west of private market investor reporting could use some help. We applaud this ongoing effort by ILPA to reduce the time and expenses of GPs associated with producing high quality periodic reporting packages.
The question remains: will it matter? Although the power dynamic in the last few years has shifted in favor of investors as capital raising has become more difficult, more often than not this power has been exercised to enhance fund economics rather than to demand more from their fund managers in the world of transparency and reporting. And while ILPA is making the reporting process easier and less costly by providing templatized reporting expectations, LPs still often view reporting requirements as a burden on small teams that takes away from their ability to devote the requisite time necessary to make solid investment decisions.
Our hope is that in the same way low-cost SAFEs have permeated the world of venture investing, ILPA is able to revolutionize investor expectations in private markets around reporting transparency. More likely, this continued effort will help at the margins, but unless there is a regulatory overhaul mandating standardized transparency amongst fund managers, it will remain an uphill battle.
How we can help
At Clockwork, we recognize these challenges and offer solutions to help GPs streamline investor relations—from communications to reporting—ensuring LPs get the transparency they need without adding unnecessary burden to fund managers. Reach out to learn more.
