Get the FREE 2024 Guide to Shareholder Communications eBook!
Oops! Something went wrong while submitting the form.
Icon Rounded Closed - BRIX Templates

Governance Insights straight to your inbox

Access to the strategies and experience of top private finance leaders in just 5-minutes of reading every other Tuesday.

Please CHECK YOUR INBOX for the special welcome we just sent you from Nth Round.
Oops! Something went wrong while submitting the form.

100% free. Unsubscribe anytime. No spam ever.

Faces of Modern CFO's
Stakeholder Communications

How to Create Delightful Investor Reporting in Today's Digital World

Zohaib Khalid


June 11, 2021

The investing world is changing by the day. Bookkeeping is light years ahead of where it was a decade ago. Snail mail is a thing of the past. And reporting expectations and requirements have evolved dramatically.

"If you go back to the governing documents, you're supposed to provide whatever is in the limited partnership agreement…But from there, it's really increased over time. So even though the contract may show that's the information that's required, the investors need to and want to know more."

David Gerogosian is a Director at Standish Management, LLC. An international third-party fund administrator & consulting group, Standish serves all aspects of private equity. David joined Graham McConnell, Nth Round CEO and Co-Founder, for a virtual fireside chat to break down the recent changesin the reporting world - and where he sees trends heading in the future.

Click the image above to watch the replay, or click here.

The webinar, How to Create Delightful Investor Reporting in Today's Digital World, covered a number of topics relevent to the current landscape of fund administration:

  • Modern reporting requirements and expectations
  • Following the lead of institutional investors
  • The importance of a secure and up-to-date dashboard
  • The rise of ESG reporting
  • Finding the reporting help you need
"It's going to always be moving forward. So software developers, make sure that you can be fluent and expansive.”

To learn more, watch a replay of the full conversation here or read many of the key takeaways below.


Key Takeaways

3:25 - Assign a keeper of record

Every aspect of a fund needs to be tracked and managed. Whether you outsource or do it in-house, it’s important to do it right.

“As we all know, the fund itself has raised capital from private investors. Capital calls are made. Investments are made, expenses, income run through the fund. And perhaps on a sidebar parallel funds that they're operating on for co-investments. So how is all that tracked? It's all managed through the general ledger. So that's the accounting platform. If you're working, the question is oftentimes asked ‘who is the keeper of record?’ Like if you’re out fundraising, etc. Are you in-house? If, so what accounting platform are you on? Working with a group like Standish, depending on what the needs are we manage that side. And there's an old term that's used, it's called bookkeeping. It's integral to everything that's going on, because it's building out of the general ledger, the debits and credits, tracking all the information. And from there, as you're booking those entries, doing the monthly reconciliations, you are tracking the loan servicing. If it's a mezzanine debt type fund, you're building a rather robust amount of financial information that is housed in that software accounting platform itself.”

7:05 - Reporting beyond the limited partnership agreement

There are certain things that you are contractually obligated to report on. But today’s investors need and want to know more. The question quickly becomes how you can best accomplish that.

“If you go back to the governing documents, you're supposed to provide whatever is in the limited partnership agreement. That's effectively the contract between the GP and the LP. And, specified in there by our trustee attorneys basically is the minimum level: balance sheet, income statement of cash flows, statement of investments. So at one point that's what was reported. You get assets, liabilities, which is basically accounting or finance 101. And then a little bit of detail listing name, address, amount of investment, where it was located, what the fair market value market is on that. And that's what is audited by your auditors at the end of the year. So it's done quarter over quarter. Typically there are some funds that may only be reporting on a semi-annual type basis. But from there, it's really increased over time. So even though the contract may show that's the information that's required, the investors need to and want to know more.”

11:45 - Institutional investors are leading the pack

Smaller offices are beginning to take the lead from sophisticated investors when it comes to reporting. On an oversight level, the SEC values a high level of disclosure.

“At the higher level, the more sophisticated, larger institutional investors have pretty much set this as the standard out there. I think the next step down is coming in from family offices that are seeing this information, say at the fund level. And then I'll call it the individual institutional investors that may or may not have been that interested in this. It's good to know what that breakdown is. And of course we have a governing body out there called the SEC that wants to see this level of disclosure, because this is how they can drill down just on produced financial information to walk in track to see, are there any significant changes within a fund. In particular especially later in life when the fund might be winding down, or, are they pushing expenses to the fund rather than at the management company level? And I see clients today, I can't tell you what percentage are doing open-type of reporting. But over 10 years, I would say no one was doing ILPA that I work with. I had a practice with about 75 funds about 10 years ago. It's one of the questions I ask when I'm talking to someone that might become a client of mine now.”

14:00 - An introduction to ILPA

Often, reporting needs are determined at the outset of a new relationship that involves bringing an institutional investor into the equation.

“Think of it - it's a dance. It's an intro. You do your PPM. You're working up with whoever your law firm fund formation attorney is - your documents. And so maybe this is more beneficial for everyone, for you two as well is that - I've done fund one. I've done fund two. I've done well. I've had good upper, top cortile returns. And I get out of the market for three or four years. You might've missed something. It's just like technology. If your computer is four years old, it runs fine. Everyone will snicker. Just wait until you try to do one of these sessions here. You better have a brand new computer. So I've done great. My investors have been happy with me talking to them, and they say, yeah, we love you guys. We want to invest. I want to write you a check for, $10, $20 million. However, you can hear the however. At this point now that it's a new fund, we need you to adopt certain reporting requirements. And so many successful people are now - I'm in dialogue with a number of them that are seeing this for the first time.”

17:48 - Reporting must be secure

While we’re becoming desensitized to reports of hacking and data breaches, the bar for security is high for anyone who manages money. A safe online dashboard is critical in the modern investment world.

“Imagine that today you get an email saying, ‘I need to call a million dollars from you. Here's the wire instructions. Here's my instructions and data I've got on you.’ You're violating all sorts of data and privacy requirements that are required by financial institutions, etc. Plus, how’s all that information being housed? Where's that app? It's all got to be maintained in a secure portal. And while everyone will say that their portal is secure, they sometimes, the question is how secure is this? So a lot of people have added a question, because it's happened in the industry. It's ‘have you ever been hacked?’ You hope to never check that box, right? Then yes, obviously, because all of us have been hacked personally at some level, whether it was your party card, if your pension fund group was probably hacked. You're on Blue Cross Blue Shield, you were definitely hacked. So many people have seen your information. We've become as individuals sort of desensitized to that, but there is a very high bar held for those that manage other people's money. And it's critical. So underscoring all of this is, how do you manage that? So setting up a web portal, being able to manage that, being able to give it in a usable format.”

23:50 - Keep dashboards up to date

Once you set up a dashboard, you need to keep it current so that it satisfies the current needs of the GP and investors.

“I don't know anyone who ever wants to build just a ‘one and done fund.’ That just happens typically because of unfortunate circumstance, or economy, or whatnot. And so I see GP portals. Now ‘dashboards’ are becoming more and more the term that’s getting used. LPs need dashboards. GPs need dashboards. And so, anyone that's in this space, working in this space, you've got a constant - you can't rest on your laurels. You can't just have release number one. You've got to be working on release 1.01, .02, .03, to constantly look to bring to market what it is that is going to satisfy the needs of the investors and the GP, and make it something that is a good value proposition for all.”

26:47 - The rise of ESG reporting

The definition of what’s compliant is in flux now more than ever. David recalled the path that OPA reporting took and sees ESG as being on a similar trajectory.

“Just look out the window. There are clouds building on this. Or you can say you’ve seen like a wave of OPA. Look out beyond that. There is a much taller wave that is stacking up in this, and it's coming from all different angles. So, ESG, we all know what it means, but we don't know what that means yet. Because it's not quite been defined. I used to start with this four or five years ago: raise your hand if you're doing OPA reporting. Many people raised their hands. And I would ask them what they were reporting. If you were doing this, keep your hand up. And by the end, I would get down to only two or three that were completely OPA compliant. They were sort of a term that we use loosely ‘OPA-like.’ ESG is going to go down on the same path to a degree, to where it's being determined right now, where does this fit in? How is this affecting the grading out in prospects of new investments?”

31:20 - Defining and grading ESG policy

Defining and identifying ESG policies is one thing. But grading them presents a separate challenge.

“I'm by no means a real estate expert. But if you are expanding or rebuilding in a low to moderate income area, or something that's basically at the poverty line level, the question might be, well what are you building? You putting in a high-end apartment, retail? Are you building something that fits the community? That's going to help uplift that community? Are you going to be able to help provide that foundation for jobs? Companies are going to be willing to come in. From the portfolio manager side, let's say of industry-agnostic type GP team that's got a couple of hundred million dollars or $50 million depending on size of the fund. Again, where are you investing? Where do your employees work? Who runs the company? Is there diversity within your workforces or diversity within the ownership of this? So to me, that part is the easiest to identify and quantify. As far as putting the grades on it - that's as someone used to say, that’s above my pay grade.”

33:48 - An opportunity for emerging managers

Small agile funds are having a moment. David sees them as being able to make an impact where many larger funds cannot.

“I think that there is a huge opportunity for the emerging manager. Now, they may not get the large institutional investors in that first fund. But they are leaner, they are meaner in terms of how they want to drive themselves and what they're looking for. I personally work with a lot of minority-owned firms and women-owned firms. And passion that I see, I'm not going to say it's greater than anyone else's. But. They know that they face struggles that some of us cannot really quite understand. And they're looking at things I think a little bit different. Smaller funds, they are writing smaller checks. They're a little more agile. They can influence and impact areas that some of the larger fund managers, by requirement, they simply have to write such a big check. A lot of deals are being missed. Why though? Because it's not getting through the due diligence process. But I think even that's going to change a little bit as the ESG mandate comes down, and people are taking a step back.”

38:11 - Reporting is an evolutionary process

All that funds and developers can do is follow the trajectory of reporting trends and expectations. It will always be a changing landscape - so it’s critical to keep up.

“As far as trying to come up with the equivalent of this is gap standard, or this is the OPA adopted methodology. I think that anything along these lines, it's going to be an ongoing morphing. It's an evolutionary process. I'll give it two years where I think everyone is going to be pretty well standardized. What I mean by that, it'll be the questions from the LPs. That's going to be the presentations going out to the investor or the prospective investors. That's all going to be pretty well slick-wrapped and speaking to all the pain points, all the hot topics. But it's going to always change. It's going to always be moving forward. So software developers, make sure that you can be fluent and expansive.”

42:09 - Find the reporting help you need

A number of compliance groups are ready and willing to walk you through the process of SEC and ESG. The best place to start is by tapping your network for recommendations.

“There are SEC compliance groups throughout the country that will work with you, the CFO, to help build everything that's required for SEC compliance. ESG, same thing. And I'm not here to give recommendations to anyone particular in that space. But if you look for them, you can find them. So the key thing is of course finding the one that works potentially best for them. And keep in mind as you're going through stuff like this, that if it's your first time diving into it, I think the best place to go is either to your prior investors, your former partners, or people you've done co-investing with, that might be a step ahead of you. If they're in fundraisers or they just closed the fund. It's best to find out from the people that just walked up that hill.”

Sign up for instant access to watch the How to Create Delightful Investor Reporting in Today's Digital World webinar‍