A private equity fund is a pooled investment vehicle where the adviser make investments on behalf of the fund. As per the industry sources, total asset under management is around $4.5 trillion as of Jan 2017. In the recent years, private equity is increasingly scrutinized because even the non-accredited/non-qualified investors are investing in private equity through their pension funds or insurance policies.
In the current competitive environment, the managers are under huge pressure from the investors, regulators and other peer managers. Investors and regulators are also pressing for the transparency in the following areas, but are not limited to:
- Accurate Information Disclosure
- Fees & Expense Allocation
- Fair Valuation Process
Regulators urge the managers to provide accurate information on their offerings to allow the investors to take informed decisions. Sophisticated investors often perform in-depth due-diligence before and after the investments by looking at the strategy of the fund, fund track record and exposure by geography/sector. So any misleading or incorrect information, will lead to higher risk for the investors.
Limited Partnership agreements often don't provide enough information on Fees and Expense Allocation. So to avoid any grey areas, regulators and investors are pushing the managers to disclose all the types of fees and expenses involved in managing the fund and its portfolio companies. As per the regulatory guideline, agreements should clearly layout all the terms and conditions along with the different fees and expenses.
Valuation is one of the biggest area of concern for both the investors and regulators. Often managers try to manipulate the valuation for their advantage at various stages. For example, at first, during the marketing and initial stages, managers tend to often show a higher fund valuation by cherry picking the best performing deals and ignoring the non-performing deal and secondly during the investment and closing stage, managers tend to manipulate the valuation and fees based on performing and non-performing deals to show a good and consistent track record. So regulators are advising the managers to follow the fund formation and fund agreement to have a fair valuation process throughout life cycle.
In summary, The SEC and investors are looking for fairness and transparency in fund management and administration. In-addition, operating partner fees, ancillary fess and management fees are being monitored and negotiated to their lowest ever, which has directly impacted manager profit margins. As a result, the managers have started relying on technology to minimize costs and increase productivity. Recent investment trends show that small and mid-size managers have started to differentiate themselves by being transparent and investing in technology to achieve their growth targets.
Vantage Software has been helping clients for 15 years to comply with regulators and investor expectations about transparency and reporting. Our specialized front and back office solutions provide seamless transparency and reporting capabilities, leading to cost effective, on time reporting and lowering manually intensive exercises.
Our clients are using the following products to comply with the above expectations:
- Vantage Insight - Self-Service investor portal tool, helps our clients and their LPs to view their investment performance, fees & expenses and carryout exposure analysis to understand the risk involved. Our managers are also using Vantage Insight during the fund raising process to show their track record and documents.
- Vantage Investor - Backend CRM, Partnership Accounting and Reporting tool, helps our clients in managing the investor/contact information, efficient partnership accounting with in-built waterfall calculation and seamless reporting. Vantage Investor allows our managers to track their expenses/fees granular to avoid any compliance issues.
- Vantage Deal Suite - Deal Manager tool, helps deal team in effectively managing the investment life cycle including activities and contact management. Vantage Deal Suite also allows our managers to monitor expenses, portfolio performance, key performance indicators and value creation metrics.
- Vantage Fund Accounting - Portfolio accounting and reporting tool, allows managers to perform comprehensive portfolio accounting and reporting. Vantage Fund Accounting provides streamlined workflow for investments in company securities or partnerships with their underlying portfolio holdings and multi-currency support.
- Coalesce - Investment Research tool, help our managers and their deal team to identify the potential investments or look for any compliance issues in the existing portfolio companies or deals in the pipeline based on the external data feeds and internal documents.