On 29 January 2016, the Institutional Limited Partners Association (ILPA) announced the launch of a Fee Reporting Template (the Template) in a wide-ranging effort to unify and codify the presentation of all monies paid by Limited Partners (LPs) to General Partners (GPs). This includes any fees, expenses and carried interest payable to GPs in the participation of any given private equity fund (Fund).
Fee transparency initiative
The Template is the first component of ILPA's wider Fee Transparency Initiative (the Initiative) which was launched on 3 September 2015. The Initiative represents an industry-wide effort to establish uniform standards and practices for fee reporting and compliance among investors, fund managers and their advisors. It builds on the Private Equity Principles issued by ILPA in January 2011, namely: alignment of interest, governance and transparency. The Template is the first deliverable of the Initiative.
Consultation for the Template began in September 2015 and has since garnered the support of over 120 individual and organisations including 50 global LPs, 25 GPs, industry trade bodies and several leading consultants, advisors, fund administrators and accountants. The Template is an expansion of the Partners Capital Account Statement and is intended to supplement, rather than replace, a Fund's existing financial disclosures.
The Template is split into two sections:
- Capital Account Statement for LP - this section enables the LP to monitor the costs of participating in the Fund; and
- Schedule of Fees, Incentive Allocations & Reimbursements Received by the GP & Related Parties, with Respect to the Fund and Portfolio Companies/Investments Held by the Fund - this provides the LP with a summary of all the GP's sources of economics in relation to the Fund.
Quarterly Reporting | The Template is to be populated and delivered to LPs on a quarterly basis, once the Fund's standard reports have been released.
Tiered Content | Data is presented using a two-tiered structure to account for varying levels of sophistication among LPs.
- Level 1 - data presented is an overview of content and is the recommended minimum baseline of content provided by GPs to LPs; and
- Level 2 - content is more detailed and granular. ILPA recommends that GPs only need to provide Level 2 content to LPs upon request.
Year-to-date (YTD) reporting | Previous drafts of the Template proposed that reporting be conducted on a trailing-twelve-month (TTM) basis. However, the Template in its current form relies on reporting on a YTD basis. This is to accommodate GPs' commercial software platforms. LPs have indicated that reporting on a TTM basis would be strongly preferred. As, such ILPA has suggested GPs and their software providers explore processes and systems that will allow reporting on a TTM basis.
ILPA plans to continue to develop and explore further ways to generate efficiency and transparency in the presentation of data from GPs and LPs. All stakeholders within the private equity industry will continue to be consulted throughout this process.
It is expected that ILPA will release the following documents as part of the Initiative in February 2016:
- recommendations on the role of third parties in ensuring compliance; and
- best practices relating to fee and expense reporting and compliance disclosures.