Institutional investors are becoming more discerning about the asset managers with whom they invest—in many cases seeking to do more with fewer groups. Limited partners increasingly seek out general partners that can deliver faster—and customized—private markets reporting,
A survey of LPs and GPs from fund administration firm Gen II Fund Services LLC found that LPs are less focused on their managers’ integration of new technology, including the latest artificial intelligence models and automation, and more focused on the outcomes that these technologies can drive and their benefits for LPs.
Gen II surveyed, in collaboration with the Harris Poll, 205 respondents, including 103 GPs and 102 LPs, from March 31 through April 8.
A Mismatch Between LPs and GPs
Steven Millner, co-founder and CEO of Gen II, notes that one of LPs’ most requested services—and a point of contention between them and their GPs—is faster reporting of results in private markets.
“Pretty much everyone I talk to in the LP space is really unhappy with the timeliness of reporting, [which typically is] 45 days on a quarter, 90 days on year-end,” Millner says. “That’s kind of a long-established precedent, but the reality is the LPs are very unhappy with that.”
For GPs, providing performance data more quickly can differentiate their firm from their competitors. The report noted that 45% of surveyed LPs ranked faster response times among their three most important considerations when making new commitments and re-upping with existing managers.
The survey found that 89% of LPs receive reporting on par or faster than guidelines set by the Institutional Limited Partners Association—however, 30% of LPs are still frustrated with the speed at which private markets data are reported.
“People have to understand—investors and GPs need to understand—that the LPs actually have to close their books, too, so if an LP reports to its investment committee on a 45-day basis and they’re getting information from their underlying GPs in 45 days, that really doesn’t work for the ultimate consumer of the product.”
‘They Want More Information … Faster’
As more institutional investors pour capital into private markets, they are also increasing the resources they allocate to manage and analyze underlying data about those investments, and they want the most-current data for that process.
One sovereign wealth client, Millner notes, employs 125 Ph.D.s to comb through portfolio data to get insights which can inform their investment decisionmaking. Another client—an institutional investor with more than $100 billion in private markets investments—utilizes an investment consultant to normalize their private markets data.
As the amount of labor and resources that limited partners need to support their private market portfolios is becoming excessive, Millner says, “That seems to me to be problematic, and so what’s, candidly, the first move? Consolidate: Make larger commitments to fewer funds,” thereby limiting the data processing needed.
Millner says there is still an expectation gap between what LPs want and what GPs are delivering. GPs may think they are providing the information they committed to give LPs, on the expected schedule, “but the LPs think differently: They want more information, [and] they want it faster.”
For the asset owners, the data itself can also be a challenge.
“This data is often unstructured, hard to piece together, and [LPs’] systems can be inefficient at piecing everything together,” Millner says. “That inefficiency sits at the sponsor’s level and [with] the data they provide.”
Additional insights from the survey included:
- LPs are generally skeptical about the digital transformation priorities their GPs are undertaking;
- LPs increasingly want actionable insights from the data they receive from their GPs;
- There is near universal agreement from LPs that GPs should offer more customizable reporting; and
- More than half of respondents see real-time reporting as cutting-edge.
“Most of the time, the AI discussion is about how sponsors can use AI within their portfolio companies,” Millner says. “That’s a lot of the narrative. I very rarely hear our clients talking about technology in the rendering and delivery of information to LPs”
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