Financial reporting standards are everywhere – direct deposit payroll programs and peer-to-peer payment applications like Venmo wouldn’t be possible if banking institutions didn’t speak the same language. But someone has yet to rope in those active in the private credit space.
While spreadsheets, online dashboards and PDFs between credit managers and their investors generally contain similar sets of information, it is displayed under different terms and formats. Limited partners who invest with multiple general partners are left to data mine and translate.
Lorelei Graye works with the Adopting Data Standards Initiative (ADS) to improve reporting between LPs and GPs within private markets – an issue she dealt with herself as a former reporting officer for the South Carolina Retirement System Investment Commission.
“There are a lot of folks in LP organisations who struggle with the lack of consistency and the gaps in data,” Graye said. “They very much see the need for improvement in the data-reporting process, but there is a concern of where they should put their support.”
A case in point is one US West Coast-based pension fund. Due to reporting disparities, it tasks an employee with organising data from GPs for the retirement plan’s records, one of its investment officers said. This person added that while the pension fund usually ends up with the data they are looking for, the process is fragmented and could be streamlined.
One template to rule them all
Many LPs have tried to bridge this gap on their own by adopting templates from organisations like the International Limited Partnership Association, creating their own templates or including their reporting requirements directly in each contract.
Ari Jauho, a partner and chairman at Helsinki-based fund-of-funds manager Certior Capital, said his firm created a reporting template for GPs they may invest with to keep a more uniform data set. He added that the creation of a centralised private credit-focused organisation, like ILPA for private equity, could help solve some of this fragmentation.
“I would urge some kind of industry standard,” Jauho said. “It would save a lot of work among managers, and among investors, if everybody was using a similar reporting template.”
Many other LPs have followed, such as British Business Investments – a commercial subsidiary of British Business Bank – which rolled out a template earlier this year.
Different industry organisations have released reporting templates designed for wider adoption. Pension Real Estate Association is working on a reporting template for the real estate industry, while ILPA developed one for private equity.
Graye, who worked on the ILPA template, said that some firms took the template and customised it. While it helps with their immediate needs, such a move works against standardisation.
“We tend to focus on what our individual reporting requirements are and only the data points we might need,” Graye said. “It’s easier in the immediate term to customise; in the longer term, it’s not easier nor efficient for anyone.”
But it’s unclear if templates are the most efficient solution at this time.
The West Coast-based pension plan investment officer doesn’t believe there is a simple path to standardisation among private credit investment strategies because they run the gamut from corporate debt to real asset strategies, like infrastructure debt and real estate debt.
Both Graye and Jennifer Choi, ILPA’s managing director of industry affairs, said that templates alone can’t solve all reporting challenges, but chief among the benefits the standardised forms provide is a standard set of data fields and definitions for LPs. This puts both GPs and LPs on the path to more streamlined data entry.
“The template is the jumping off point for better reporting, which we hope in the future will be fully digitised and not confined to Excel-driven PDFs,” Choi said. “The real value is not in the formatting of data on the page, but agreement on what key information should be provided, and how those data points are defined.”
The industry has time to decide, as any form of broad standardisation is years away, even if change started today. Graye said an eventual template or program to solve the problem would likely need to come from a “commercially neutral and technologically agnostic” source.
“Part of our goal is to set realistic expectations because to have any form of broad adoption it takes seven to 10 years,” she said. “You have to commit to a path to achieve it.