ILPA to unveil fee reporting template

The Institutional Limited Partners Association (ILPA) has developed a reporting template for LPs that will detail all funds paid to general partners, including fees, expenses and carried interest.

Using the new reporting template, individual LPs would receive “detailed, periodic balances for their share of paid and accrued fees and GP incentive compensation”, as well as a clearer view of managers’ other sources of compensation, ILPA said.

ILPA is expected to circulate a first draft of the reporting template for consideration later this month.

The final template, pending comments from fund managers and advisers solicited from mid-October, will be released in early January. It will not be mandatory or enforceable but something members can use and adapt.

APG, CalPERS, DC Retirement Board, Florida State Board of Administration, NY State Teachers, the Teachers Retirement System of Texas and the Washington State Investment Board were among LPs that contributed to the development of the fee template, along with consultants Albourne, CEM Benchmarking and TorreyCove Capital Partners, and fund administrator Conifer Financial Services, ILPA said.

The initiative is part of the debate around fees and carried interest payments, focused primarily in the US. In July, CalPERS, in response to criticism following reports that it did not know how much carried interest managers made on its investments, announced that it was chasing the remaining 6 percent of GPs that had not supplied back-dated carried interest data.

The fund will start publishing carried interest information in the autumn, as reported by Private Equity International. The fund is also planning to half the number of its external managers, including PE, to reduce costs.

CalPERS’ announcement was followed in late July by a letter sent to 13 state treasurers to the Securities and Exchange Commission urging the regulator to impose standardized fee disclosures.

The development of the template is part of the association’s Fee Transparency Initiative announced this week. The initiative “aims to establish more robust and consistent standards for fee and expense reporting and compliance disclosures among investors, fund managers and their advisers”.

ILPA will produce new guidance relating to transparency and reporting over the short- and long-terms that builds on existing guidelines that cover quarterly reporting, capital calls and distribution notices. The association noted that the number of individual reporting formats in use make compliance procedures challenging and difficult to benchmark costs and net performance.

“We need transparency and there is pressure from investors to see what costs are involved,” Capital Dynamics managing director John Gripton said. “A template from ILPA will be helpful but only if the managers agree to use it. To date the adoption of standardized formats has proved difficult.”

The initiative will also produce recommendations on the role of third parties, including administrators, auditors, consultants and attorneys, ILPA said. It is looking to see if it can come up with a more efficient way for LPs to audit and validate fees, which usually involves consultants and can be a specialized and complex task.

ILPA will recommend best practices regarding fee and expenses reporting and compliance disclosures to be added to its 2011 ILPA Private Equity Principles. Both will be presented along with the final template in January.

The Private Equity Growth Capital Council said, “We applaud ILPA’s work to represent investors’ interests and we hope to continue a positive dialogue with ILPA on transparency and other issues.”

With additional reporting by Kelly Holman.