LP Reporting And The Need To Move Away From VDRs

April 25, 2018

A brief history of LP reporting

In the beginning…

…there were envelopes, stamps and the U.S. Postal Service to send out notices and statements to LPs.  Not quite efficient nor cost effective, but it worked.  Then came email, and investor’s inboxes became full of attachments that had to be downloaded and organized somehow to keep track of all their fund managers correspondences.  And email lived on for many years, until hacking tools progressed to the point where sending sensitive information using email became a very bad idea.

What is investor portal software?

The concept of what comprises an “investor portal” is a bit amorphous, but its general concept – a web-based interface that allows investors to capture relevant information – has been well received by the LP community. In fact, according to a recent survey, LPs prefer to receive their information via an investor portal.

Why do LPs prefer portal solutions for reporting?

While the GP, in a sense, puts the onus on the LP to manage their investment portfolio, the investor portal software is designed to do more of the heavy lifting for investors. This means, for the most part, replacing an LP’s internal server based file system with a GP-based cloud platform so that documents and notices can be accessed via a browser in an organized manner. Sometimes a GP can add some private-label elements to the site to re-enforce branding and messaging.

Why are Virtual Data Rooms an insufficient LP reporting tool?

Many of these first-generation portals have been dubbed Virtual Data Rooms or VDRs, and many are still used as an initial email replacement.  The trouble is, though, that LP expectations for how they want to communicate with their GPs has moved beyond what a VDR can handle. Way beyond.  LPs have been pounding the table for more transparency from their alternative investment managers – both hedge and private equity.  There isn’t a day that goes by without some survey extoling the fact that LPs want more.  Not more documents, more insight, and this is where the typical VDR (and other file syncing applications like Box and Dropbox) fall short.  Not providing investors with better tools with which to 1) glean insights into their investments and 2) provide them the ability to download data, is quickly being frowned upon in the LP community. As the CIO of a large insurance company ($2 bil PE portfolio) recently told me: “Being able to download data right from a chart or table in a portal is much more helpful to us than having to download a document and re-entering the data in our system. It’s a complete waste of time.”

Moving PDFs to a file system in the cloud via an investor portal has been a step in the right direction (vs email) but there are still numerous problems with PDF/document-only methods of communicating with investors. It forces LPs into the proverbial “re-keying” of cash flows and valuations into their own spreadsheets or systems, sacrificing time and accuracy.

Allvue’s LP reporting solution

It seems both GPs and LPs agree that email as an LP reporting tool has passed its shelf life. VDRs, while incrementally better, also seem to have run their course.  With headlines screaming about record dry powder and high valuations, investors can be excused for being a bit nervous, and when investors are nervous, they ask questions. A lot of questions. For GPs, staying ahead of the communication curve in the coming years is going to be awfully important.

Once LPs begin to have access to the type of reporting tools normally reserved for their marketable securities, though, one can imagine document-centric VDRs will start to become passed over for the type of experience an LP can have with a full-featured investor portal. Providing an analytical and data-centric LP platform for LPs (custom branded of course) is what’s really going to fuel investor goodwill.

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