The broader private equity landscape has experienced remarkable change over the past decade across several areas – from portfolio management best practices to leveraging AI and modern data platforms within portfolios at scale – and top performing funds have been able to successfully adapt their investment approach to what the market and LPs expect.
Reporting transparency has emerged as one of these crucial factors within the GP-LP dynamic, with LPs demanding increased access, detail, and frequency of updates from GPs. Recent industry surveys suggest that many GPs are experiencing heightened pressure for transparency around their underlying portfolio assets, and LPs are no longer satisfied with standardized annual reports or quarterly portfolio updates. Rather, LPs are increasingly demanding granular insights into all aspects of the portfolio, up to and including real-time access to operational metrics and financial data.
In the article below, we will discuss a brief history of the evolution of LP data requirements, areas where increased transparency appears to be most pronounced, and how reliable private market data and analytics can help GPs provide more comprehensive reporting and benchmarking to LPs.
The Evolution of LP Data Requirements: From Annual Reports to Real-Time Insights
The evolution of LP data requirements over the past decade or so has been swift and decisive. Traditionally, LPs were given access, on a quarterly or annual basis, to fund-level performance metrics – but this has rapidly shifted in the past few years to an environment where LPs request granular portfolio data with more regularity.
Market conditions have fundamentally altered these traditional dynamics. In an environment where interest rates remain elevated (compared to the past decade) and growth is at a premium, Multiple Expansion in isolation can no longer drive returns. This economic reality has pushed LPs to diligently question GPs about how exactly they plan on creating value in their portfolios – with particular emphasis on margin expansion and revenue growth.
LPs have also become more sophisticated in their approach to risk, and need vast amounts of data at the portfolio level to train models and access portfolio risk. For example, during macroeconomic shocks such as the COVID-19 pandemic or the conflict in Ukraine, LPs needed real-time access to on-the-ground portfolio data to determine exposure and chart a path forward. In an information (and geopolitical) environment that appears somewhat volatile going forward, LPs will want their risk profiles adjusted in real-time to deal with potential shocks. And, as these reporting expectations change, GPs will need to ensure they have the proper infrastructure in place to satisfy LP demands.
Deal sourcing and pipeline transparency has also emerged as an area of focus in GP-LP relationships. As expected, LPs want insights into not only closed deals, but the broader opportunity set being evaluated by GPs. Understanding deal sourcing strategies, proprietary advantages, and the rationale behind passed and pursued opportunities fits well within the potential items requested by LPs on a regular basis. If the tools aren’t in place to rapidly generate these reports, GPs could find themselves wasting valuable bandwidth manually pulling and formatting data to satisfy LP asks.
Finally, when it comes to GP valuation methodologies and overall fund economics, there appear to be factors at play which will continue the trend towards greater data and reporting transparency. On the valuation side, LPs want more visibility into specific GP valuation methodologies to ensure that exit expectations are in line with what LPs may be seeing in the market or need to ensure a satisfactory return profile. On the fund economics side, LPs will only want more transparency around fund leverage, fund expense policies, and broader fund financial profiles.
Technology as the Solution: Meeting Modern LP Requirements
With the above in mind, it’s clear that traditional reporting methods and legacy systems can’t keep pace with the barrage of reporting requirements mandated by LPs. Manual data collection processes and static reporting tools not only create significant operational burden for GP teams, but also increase the risk of errors and delays in responding to time-sensitive LP requests.
Modern technology platforms have emerged as one solution to the challenge faced by GPs. These platforms give GPs the ability to automate data collection, standardize reporting processes, and provide LPs with the real-time insights they demand. CEPRES, for example, is one such platform - enabling GPs to benchmark their investments against a vast database of private market deals, providing contextual understanding of performance across different market segments and industries.
The advantages of a technology solution reach beyond just meeting basic reporting requirements. GPs can free up valuable bandwidth within their fund – time that was previously spent manually fetching and organizing disparate data requests into formats suitable to LPs. Utilizing a technology solution – particularly one that provides GPs with high-quality investment data – has proven particularly valuable in risk management, enabling quick responses to emerging risks and market events. Perhaps most importantly, the enhanced ability to provide detailed, accurate responses to LP queries has strengthened relationships and built trust, while comprehensive performance data and sophisticated analytics have supported more compelling fundraising narratives.
Looking Ahead: The Future of GP-LP Transparency
As we look forward, it's clear that the trend toward greater transparency in the LP-GP dynamic will only accelerate. Forward-thinking GPs are preparing for this evolution by investing in robust data infrastructure and adopting sophisticated analytical tools, such as CEPRES – which helps GPs satisfy LP demands with a comprehensive dataset of over 130,000 deals across 560 private equity sub-industries. Through its portfolio management and benchmarking toolkit, CEPRES enables GPs to create detailed forecast reports and measure portfolio performance using verified cash flow data, giving GPs the on-demand data and reporting they need to satisfy LP requests.
As private markets continue to evolve and LP expectations grow more sophisticated, the ability to provide comprehensive, accurate, and timely information will become a differentiator for GPs. Those who invest in the right infrastructure and leverage modern technology platforms will be best positioned to build and maintain the trust of their LPs, ultimately supporting both near-term operations and long-term fundraising success.
