By: James DiCostanzo
Sales Director
May 4, 2023
A key aspect of private equity reporting is keeping your investors informed and up-to-date on your portfolio companies. One critical aspect of maintaining this knowledge is through regular investor reporting. These investor reports act as a necessary communication channel between the private equity firm and its investors, providing crucial updates on investments and progress towards achieving strategic goals.
What is investor reporting?
Investor reporting is the process of sharing information with investors on the performance of their investments. It is a crucial communication tool that allows investors to stay informed about their investments, track their progress, and make informed decisions.
Investor reports are typically shared with limited partners in private equity funds. The reports can be periodic or on an ad-hoc basis, depending on the fund’s structure and investment strategy. They are usually comprehensive and transparent, providing investors with a detailed analysis of their investment’s performance, opportunities and returns.
Investor reporting is also increasingly difficult, and 70% of GPs name LP reporting activities as their top operating challenge. In a world where the volume of data keeps increasing, flowing in from disparate data systems and out to a widening number of stakeholders, executing timely, accurate reporting on a recurring basis is a challenging task.
Given this growing need, we’ve put together this guide to investor reporting – acting both as an in-depth primer on all things investor reporting related and as a resource hub to help you jump start your reporting needs.
What are common investor reporting challenges?
Investor reporting has, for many firms, become an increasingly complex and time-consuming process, and GPs face several challenges when preparing and delivering investor reports. Some common challenges include:
Data Management
As Mike Trinkaus, CEO and co-founder at 4Pines Fund Services, put it to us, “The biggest challenge facing a GP today is data.” Private equity firms often manage vast amounts of data, and ensuring that data is accurate and up-to-date can be challenging.
“The biggest challenge facing a GP today is data.”
-Mike Trinkaus, CEO and co-founder, 4Pines
And beyond the amount of data, the movement of it between stakeholders is also a major complicating factor. “For GPs, moving data between service providers, auditors, lawyers, compliance teams and other internal and external stakeholders is a real challenge,” Trinkaus added.
Gathering data from administrators, service providers and portfolio companies, verifying it, and consolidating it can be a laborious and time-consuming process, and can be one of the most significant challenges of managing investor reporting.
Communication
Communication between private equity firms and their investors can be challenging, particularly when managing large numbers of investors with varying requirements and expectations. Add in other 3rd parties and service providers who need access to specific reports, and trying to keep a manual list of these ever-changing access requests can prove challenging, risky and time consuming.
Timeliness
Investors expect timely and regular reporting, and private equity firms can face challenges meeting these expectations. The illiquidity of alternative assets and the complexities of private equity fund accounting can make reporting a tedious, laborious process, particularly when managing a large and diversified portfolio.
Security
All the challenges of investor reporting are further complicated by the very real cybersecurity risks both GPs and LPs face, often defending against spoofing and phishing attacks levied via email and other unsecure communication platforms. 33% of GPs still distribute sensitive information via e-mail, leaving them and their LPs open to a variety of security hazards.
READ MORE: 4PINES ON WHY CO-SOURCING IS THE FUTURE OF FUND ADMINISTRATION
What are common investor reports?
Private equity firms typically provide a wide variety of investor reports. Some of the most common include:
- Quarterly Reports: These reports provide an overview of the fund’s performance, including financial statements, a review of portfolio companies’ performance, and any other relevant information.
- Annual Reports: These reports are more in-depth and include a comprehensive review of the fund’s performance for the year, including financial statements, a review of the portfolio companies’ performance, and any other relevant information.
- Capital Account Statements: These reports provide investors with a detailed view of their individual investments, including the capital committed, contributions, distributions, and current value.
DOWNLOAD: SAMPLE PRIVATE EQUITY REPORTING TEMPLATES
What should an investor report include?
Investor reports should include a range of information to provide investors with a clear understanding of the investment’s performance, along with their positions and returns. Some of the critical elements that should be included are:
- Portfolio Performance: This should include a detailed analysis of the portfolio’s performance, including any changes in valuation, cash flows, and other financial metrics. Investors should also receive information on the portfolio’s industry sector and how it compares to its peers.
- Market Analysis: A market analysis should provide investors with insights into the industry and market trends that could affect the portfolio’s performance. This could include information on competitors, market size, and market growth rates.
- Risk Assessment: Risk assessment is an essential component of any investor report. It should include a detailed analysis of the risks facing the portfolio, including operational, financial, and market risks. The report should also outline the steps being taken to mitigate these risks.
- Corporate Governance: Private equity investors are increasingly interested in the governance practices of their portfolio companies. Investor reports should include information on the portfolio companies’ governance practices and any changes being made to improve them.
Investor reporting trends
Because investor reporting is an essential part of the private equity ecosystem, it both influences and is influenced by other trends in the industry. Here are a few of the top trends in investor reporting in recent years:
Investors expect more transparency
Accelerated in part by COVID and the increased need for information, private equity firms have become more transparent in their reporting, providing more information to investors about their investments and performance. While in part driven by investors’ increasing demands for transparency, GPs have also furthered this trend along in an effort to build trust with their investors.
Making the case for long-term value creation
There is a growing trend towards focusing on long-term value creation in investor reporting. In the recent tumultuous market environment, many private equity firms have started providing more information on how they are working with portfolio companies in order to create long-term value, including details on their strategies, operational improvements, and other initiatives. This is information LPs are looking for that can help them determine if they will re-invest or re-up with a particular fund manager.
A shift towards digital reporting
Technology is playing an increasingly important role in investor reporting, with private equity firms leveraging tools like investor portals, dashboards, and analytics to provide more timely, customized, and accurate reporting to their investors.
This embrace of technology is part of a broader move towards digital reporting. Finally overturning decades of precedent, where the norm was to mail out reports via hard copy – a preference that for many continued long into the digital age – many investors now prefer to or even require that they receive reports digitally. Much like retail banking, investors now expect their data and documents to be consolidated and available via an online portal. This trend is driven by a desire for greater efficiency and speed for both the GP and LP, as well as greater convenience and security in the reporting process. And it is facilitated by the significant automation capabilities purpose-built software now makes possible.
WATCH 2-MIN DEMO: ENHANCING YOUR INVESTOR EXPERIENCE
How technology can facilitate investor reporting
Investor reporting is, in many ways, a very labor-intensive task, and technology can therefore play a crucial role in streamlining the process and helping private equity funds to overcome the challenges they face.
A few of the ways that technology can facilitate investor reporting include:
- Data Management: As previously mentioned, data management is the defining challenge of private equity fund management. Technology can help GPs to automate the data collection, verification, and consolidation processes, and, via integrated systems, can provide a single source of truth across the lifecycle of a fund, substantially reducing the risk of errors and streamlining processes.
- Communication: Investor portals and other similar solutions can help private equity firms to improve communication with investors, providing secure portals where investors can access relevant information and updates, including self-service dashboards. These features can build trust between both parties and provide a more secure avenue than email traditionally would.
- Efficiency: Technology can help private equity firms to meet the increasing demand and expectation from investors for timely reporting, providing real-time updates on portfolio performance and other relevant information. The right technology can save a GP hours of manual reporting creation and dissemination.
- Automation: The niche needs of private equity and alternative investments often necessitate hours of work to collect data and create customized reporting. Investor portal systems, especially when integrated as part of a larger technology stack, can make it simple to automate your reporting workflow and save hours of overhead.
LEARN MORE: HOW INVESTOR PORTALS BENEFIT BOTH LPS AND GPS
How Allvue streamlines the investor reporting process
Investor reporting is critical for private equity firms to communicate their investments’ performance and progress towards objectives to their investors. And, increasingly, investor reporting processes require the right technology to make them scalable and error-free.
Allvue’s Investor Portal software solution offers a powerful and flexible option for firms. Available as both a standalone solution and as part of an end-to-end, fully-integrated platform, Allvue can help emerging managers and enterprise firms alike streamline their investor reporting workflows.
Our Investor Portal comes with a handful of distinct features that set it apart from the competition:
- We are built on Microsoft’s platform, allowing us to offer a cloud-based, secure and intuitive environment that, unlike many of our competitors, never requires costly upgrades.
- Our solution is available preconfigured, as opposed to many of our competitors who have lengthy and costly implementation processes.
- Our solution integrates seamlessly with our industry-leading platform, including our award-winning back-office solutions such as our best-in-class fund accounting software system. Our investor portal offers an entry-point into that ecosystem so that users can easily scale their tech stack along with their firm.
- We have a built-in CRM, making our solution more than just an investor portal. Streamline your investor relations management, as well as administer your portal all in one place.
- We offer automated report generation and dissemination, when used with our integrated fund accounting solution, users can easily create reporting packages as well as generate notices, send mailings and administer their portal seamlessly.
- We have e-mail tracking capabilities, allowing users to track the delivery of outbound e-mails and notifications. We provide real-time data on read receipts, bounce backs, and undelivered messages so that IR teams can make sure all the necessary reporting gets to their investors.
Reach out today to learn why Allvue’s Investor Portal is already accessed by over 90,000 users from the world’s leading institutional investors.
More About The Author
James DiCostanzo
Sales Director
James DiCostanzo is a global sales leader with over 20 years of experience in the financial, private equity and SaaS industries. He is currently the Global Head of Growth Equity Sales at Allvue Systems, a leading provider of investment management solutions. He joined Allvue Systems in March 2020 as the Head of Sales for the East Region, after working at Thomson Reuters for nearly two decades in various roles, including Head of Solution Specialists, Data & Analytics and Global Business Director. He has a bachelor’s degree in Business/Managerial Economics from SUNY Oneonta. He is based in the New York City Metropolitan Area and can be found on LinkedIn at https://www.linkedin.com/in/jamesdicostanzo/.
