ON THE PANEL:

• Melissa Ferraz, managing director, global head of eFront Insight, BlackRock
• Alex Scott, partner, Pantheon
• Carla Findlay-Dons, director ESG business development, KPMG
• Brad Thawley, senior director private equity, UTIMCO

While economic uncertainty has enhanced the delivery and detail of shared GP data, major gaps remain. Regulatory drivers and trade body reporting frameworks are in play, but private equity stakeholders reveal that the greater push and incentive for comprehensive reporting may be increasing competition for LPs and the spectre of new investors entering the market.

In a recent Real Deals webinar, in association with eFront, a panel of experts discussed how increasing LP demands and a growing number of entrants into the PE market is pushing for better and more timely access to data across the industry. Here are some highlights from the discussion

Filling the gaps

While LPs are getting better disclosures than ever before, Pantheon partner Alex Scott said that PE still has a long way to go. He noted that there are major gaps in entry and exit data, revenue and earnings and company financial reporting, as well as the more timely delivery of data on a quarterly basis. He says that can make it hard for fund managers, like Pantheon, to aggregate data and make comparisons between investments.

“Unless you have got high percentage coverage, any analysis or summaries you can provide are going to be limited. Not only do you need managers reporting to high standards, you need almost all of them reporting to a high standard.”

UTIMCO’s Brad Thawley added that it is not just a case of transparency, but also how firms are presenting that data. “In order to get transparency, there needs to be consistency in reporting and that is easier said than done. Though once we describe what we are doing with the data, its purpose, who is going to see it, the data security around it, most GPs are receptive to putting it in templates and developing systematic approaches.” Thawley acknowledged that it can be difficult for smaller GPs to achieve this, as often only larger firms have the resources to address the data challenge.

Aligning GP and LP interests

Moreover, managing director, global head of eFront Insight, BlackRock Melissa Ferraz revealed that many GPs have concerns about how LPs are using, interpreting and assessing the data they are asking for. She notes that in reality, data is complementary to existing LP relationships, providing context and orienting discussions. “Data should help identify the top areas of concern so the conversation between GPs and LPs, especially in uncertain market environments like we face ourselves today. Data allows managers to be proactive in field queries by their LPs in a timely fashion.”

As an asset allocator, Thawley noted that UTIMCO has an insatiable demand for data. It is key to fully evaluating the risk adjusted returns of PE. But without the ability to assess data against benchmarks, with past market events or other market forces, risk adjusted returns of firms and their strategies can’t be projected into the future.

He said: “Any manager individually looks great on paper, but until you have the ability to combine that with others, you can’t get a good understanding of what risk adjusted return really means in PE. The level of data transparency is important for making better decisions about our overall allocations to PE.” Thawley suggested that this alone should be incentive enough for the industry to work on a more systematic approach to data transparency.

ESG and data

ESG could be a game changer for the PE market. Institutional investors are facing increasing commercial and regulatory mandates from backers and customers to deliver on ESG.

Scott highlighted that PE is viewed as a decisive place for investors to meet these requirements, often in a way that is not possible in other asset classes. “In private markets, you’ve got the chance to fund new projects and make [positive] transactions happen, that otherwise would not happen.”

However, Findlay-Dons noted that without standardised frameworks, investors’ doubts over greenwashing and ESG being a tick box exercise, could continue. “Even between reporting agencies themselves, they all have all got their own methodology. You could be looking at an investment that gets a positive ESG score from one agency, yet a negative from another.”

New investors, greater expectations

Ferraz said that as PE allocations increase each year, so does the demand for better data. “If private markets continue to attract new money from traditional investors, it is vital that these investors can compare opportunities on a like for like basis. The more aligned the public and private markets become in terms of regulation, the more accessible they will become.”

Findlay-Dons goes even further, suggesting that low data standards, compared with other asset classes, are serving as a barrier to entry to investors keen to enter the PE market. “When you’re the investor, you’re wanting to be able to compare apples with apples, instead of apples with kumquats. You are wanting to be able to justify your decision making and why you invested.”

To properly make these kinds of decisions, she said investors need to be able to access the quality of information they’ve been getting in other asset classes for years. “In the PE market, there needs to be a recognition that you are not being compared just with your other PE peers, you are being compared with other asset classes. PE doesn’t want to barr those investors by a lack of transparency or a lack of data.”