GPs, LPs show further misalignment on fee reporting

Further fueling the fee transparency debate that has been heating up throughout the past year, the latest Reputational Risk in Private Equity (RRiPE) Report reveals that LPs are far less satisfied with the quality of managers’ fee reporting than GPs think they are.

When asked to score the level of clarity in their breakdowns of fee expenditures, GPs rated themselves an eight out of ten. LPs were far less complimentary, rating the clarity a four out of ten. Moreover, 58 percent of LPs believe that GPs sometimes provide them with incorrect information about how fee income is spent. In contrast, 96 percent of GPs denied that this ever happens.

The RRiPE report also covered carried interest reporting, a topic that was thrust into the spotlight earlier this year when the California Public Employees Retirement System (CalPERS) revealed that it could not determine how much carried interest its private equity managers receive and began requesting more information from its GPs.

Around 60 percent of the LPs surveyed are in the same boat as CalPERS, saying they need better information from GPs to be able to track levels of carry. However, not one of the GPs surveyed said they thought LPs needed more carried interest information, believing the information they provide is sufficient.

Nearly all (98 percent) of the LP respondents either agree or strongly agree that the industry needs an agreed standard for the reporting of fees. Meanwhile, 73 percent of GPs said the same.

This enthusiasm for a common fee reporting standard from both parties bodes well for the new fee reporting template set to be released by the Institutional Limited Partners Association in January. The LP trade body is currently soliciting feedback on the new template, which will supplement its existing quarterly reporting standards by adding new sections on GP compensation and miscellaneous items like clawback obligations.

The RRiPE report polled 122 LPs and 52 GPs, most of whom hailed from the UK or continental Europe. Most LPs surveyed were pension funds, while most of the GPs who participated focus on the small/mid-market buyout and growth sectors.