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Despite the havoc wreaked by COVID-19, fund managers across the private capital spectrum are working overtime fielding inquiries from their LPs wanting to know the status of their portfolios.
How fund managers and their investors efficiently produce (for GPs) and collect (for LPs) this information is dependent on the technology platform being used. Phone calls are the quickest way to pass information but certainly not the most efficient.
Developing an Ongoing Communication LP Communications Plan
The need to facilitate the flow of information between GP and LP has never been greater. Best practices, in times like these, call for managers to be proactive in reaching out to their investors and developing an ongoing communication plan. However, how that information is transmitted between GP and LP is another story. Investors, for their part, also face the quandary of how to efficiently collect and organize all the information (both qualitative and quantitative) that they are requesting from their managers.
The first tool most GPs turn to is email. But put yourself in the LP’s shoes for a moment. How does email help investors when they have to track so many GP communications? It’s not uncommon for a pension fund to have 50-100 private capital GPs in their portfolio on which they need to track and report. For investment consultants, that number can easily be 10 times that. With an inbox full of letters, updates, statements, agreements and the like, the onus is put on the LP to manage their GPs’ communication.
But what if a GP could employ a tool that not only helps them organize their investor communications but also helps their LPs in doing the same?
Investor Portal Technology
Our 2019 CFO Survey showed that over two thirds of GPs in our survey use an investor portal to communicate with their investors for a variety of reasons.
There are a number of factors why GPs use investor portals (vs. email) but one of the most prominent reasons is the security differential between email and employing a portal. As the pressure intensifies for more transparency, GPs must make available more and more sensitive information (about their holdings, LOCs, valuations, etc.) none of which should run the risk of falling into the hands of bad actors. This is, of course, in addition to LP-specific information that is also highly sensitive, such as investor bank account information, wiring instructions, tax IDs, SSNs, sub docs and the like.
Another advantage for GPs in using portal technology is the visibility in knowing which investors have accessed which information they’ve shared and when.
Let’s say you are proposing an amendment to your LPA. Making sure every investor has seen the communication about the proposed change is critical, particularly under a time constraint and when feedback is needed. Knowing which investors have read the communication, and which haven’t, can help IR be more proactive in getting sign off. Such visibility into LP interaction with posted information can be invaluable for IR teams during fundraising, where having insight into prospect engagement can help drive the process to fund close.
Additionally, it’s important not to overlook the benefits that investor portal software offers LPs in helping them manage the influx of information from their managers, namely:
Of course, the benefits – for both GPs and LPs – can only be achieved if the underlying technology offers certain features including:
The benefits of utilizing an investor portal for GPs are quite clear, providing an efficient and secure way for them to distribute critical information to their investors. The benefits to LPs, while maybe less obvious, would certainly be embraced by a community that is facing its own challenges in information consumption and management. In times like these, maintaining healthy relationships with investors is of paramount importance. Providing LPs with the best possible communication and information sharing experience can benefit all parties in the end. After all, if everyday investors have access to comprehensive portals and dashboards via their 401k or brokerage provider, shouldn’t institutional investors have the same for their private capital investments?