Chief financial officers at private capital firms are facing demands from investors for greater transparency into fund financing, reporting and risk management, according to a report from corporate, legal, tax and compliance services provider CSC.
“The defining shift in today’s private capital operating model is that CFOs are becoming the architects of operational trust, the executives responsible for ensuring that liquidity, reporting, data, controls, outsourcing, cybersecurity, and increasingly AI-enabled processes operate as a coherent and reliable system,” the report stated.
CSC’s recent report, which examined how private capital firms are adapting to the rising use of fund finance and liquidity tools, was based on a survey of 300 general partners and 200 limited partners in North America, Europe, the U.K. and Asia Pacific.
The survey found that as private capital firms use a wider range of financing options to manage cash flow and fund operations, investors are seeking greater clarity on how these arrangements affect returns, costs and governance.
The findings suggested that investors are becoming less concerned about whether fund managers use borrowing and liquidity facilities and are more focused on how those tools are explained and managed. The survey found that nine out of 10 limited partners reported that they would be more likely to commit capital to or reinvest with a fund manager if there was clear disclosure regarding the use of fund-level leverage and liquidity tools.
Financing costs were the area in which limited partners said they are seeking the most information, according to 58% of respondents, while 56% said they want greater visibility into how borrowing affects investment performance and reporting. Limited partners “generally view fund-level leverage and liquidity tools positively when their use is transparent, consistent with strategy, and operationally justified,” the report stated.
However, CSC’s report also found that LPs’ confidence erodes when those tools are: opaque; used to engineer distributions or internal rate of return/distributions to paid-in capital; or used to create unexpected leverage or liquidity risk.
CSC’s survey indicated that “integrating facility data with fund accounting and investor reporting” was the main concern for general partners, followed by “coordinating across multiple facilities and providers,” and “performance attribution and fair-value impact of leverage.”
According to the report, these changes are expanding CFOs’ responsibilities to include ensuring that borrowing costs are recorded consistently, lender requirements are monitored, and investors receive clear information about the effects of financing decisions on fund performance. This is in addition to continuing to oversee the private capital firm’s financial reporting.
“As firms use more facilities, structures, and financing routes, they need to be able to explain not only how those tools are being used, but also who bears the costs and how they affect performance, liquidity, and governance,” Marshall Saffer, CSC’s managing director for fund and capital markets services, said in a statement. “The more facilities, structures, and financing routes a GP uses, the harder it becomes to explain the economic impact with clarity.”
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Tags: general partners, limited partners, Liquidity, Private Capital, Private Credit, Risk Management, Transparency