Asia LPs can drive reporting efficiency globally, and it’s closer than you may think, said Lorelei Graye and Mattie Wortham of ADS Initiative.
Current Operations
The reality of portfolio reporting today is that spreadsheets are the primary data capture mechanism. The most advanced Limited Partners (LPs) and portfolio data service providers do not have straight-through processing despite the focus on robotics, automation, and PDF “scraping.” The quickest method to gather LP fund-level and portfolio company data is still through an established Excel template. The same goes for LP-centric reporting such as the ILPA Fee Template, which is itself an Excel-based template. However, the proliferation of different templates not only causes GP headaches, but each new template threatens to push all private capital market participants further away from digital reporting and the path to automation. LPs usually outsource the manual work of data aggregation and cleansing, but the reality is that LPs are carrying the cost of this inefficiency, year after year.
Lorelei Graye, Founder, CEO, and Independent Consultant at The ADS Initiative and Leodoran Financial, joined us for an interview to discuss what could be a real solution to standardising data in the industry.
The Providers
The LP service and technology provider market continues to expand and contract with numerous new entries and subsequent consolidations. An increasing number of LPs are engaging the providers to cleanse, normalize, and aggregate data which pushes down LP costs through competition but can indirectly raise their fund expenses with each new LP or delegate template request to the GPs. Providers stretch budget, resources, and scope to win valuable LP business with the goal of great coverage of the fund universe, maximizing their “data leverage effect,” which is how the providers seek economies of scale. Each additional LP client increases the funds covered and therefore, the overlap in data collection for a provider to take advantage of a one-to-many reporting process, aka scale. Further, the LP appetite for data is growing, and the complexity is daunting; therefore, providers have become essential to acquiring relevant information and formulating the industry solution.
Asia LP Influence
LPs in Asia are particularly influential because they represent, in many ways, new money and new opportunity for the private capital markets. Increasing allocations from Asia could be deemed a result of regulatory changes and lower margins on US treasuries and other influences, but the key point here to consider is the power of the collective LPs and their mandates to private equity. According to a recent Preqin Special Report[1] on the market, the firm is tracking 1,074 significant LPs in the region, and that number continues to “even more rapidly than the fund manager ecosystem.” Additionally, Preqin reports that LPs in the region:
- Average $65bn in AUM and have a target allocation of 27% to PE and venture
- 49% of the surveyed LPs plan to commit $100mn or more in the next 12 months, and
- 44% plan to commit to 1-3 in the next 12 months
Opportunity
The significance of these facts is that LPs in Asia can considerably influence industry practices. As private capital market allocations ramp-up, so too will the costs but this is also an opportunity. An immediate opportunity to build it right by aligning private equity data within multi-asset class platforms that can be populated with accurate, reliable data received in electronic reporting – bypassing manual data entry and bespoke, spreadsheet templates. Spreadsheets are for bespoke analysis, not routine reporting. So, now what?
Action Steps
A few Asia-based LPs can influence a major, global movement to improve reporting methods, industry-wide through the non-profit group, the Adopting Data Standards Initiative (ADS or ADS Initiative)[2]. The ADS Initiative is a global forum and cross-collaboration for all stakeholders that was established to organize the effort and momentum for data standards in GP-LP reporting. Adoption of data standards will mean that market participants will be utilizing common tags (or labels) for data points in reporting and generally accepted data definitions to facilitate mapping to and from any report/template, technology, or system.
There are specific steps that LPs can take to make global data standards a reality:
- Support and engage the non-profit ADS Initiative with your LP peers, providers, and GPs
- Seek providers who will support ADS and the best interests of our industry
- Encourage your GPs to support ADS and in the future, adhere to the common data standard for future funds through side letters and other agreements