Private equity funds’ reporting quality is lagging despite investors calling for more transparency and timeliness, a new survey has revealed.
According to EY’s survey—conducted in collaboration with Private Equity International—some 45% of nearly 90 investors surveyed said fund managers can improve their reporting, a 400% increase from 11% in 2014.
“Regulatory disruption has caused a seismic shift in the private equity industry as investors and regulators demand better information more quickly.”More than three-quarters of investors also stated that private equity funds could improve their report transparency, while 60% argued the timeliness of these reports was critical.
This overwhelming uptick in investor demand could be attributed to an increase in regulatory audits since the financial crisis, the report said.
“This regulatory disruption has caused a seismic shift in the private equity industry as investors and regulators demand better information more quickly,” said Scott Zimmerman, EY Americas’ private equity assurance leader.
To successfully address these regulatory burdens, EY suggested private equity managers not only invest in data management capabilities, but also conduct a “fundamental overhaul” of their operating models.
However, this may be easier said than done.
“Digital solutions will help solve the reporting dilemma,” Zimmerman continued. “However, such technology architecture does not yet exist, and it will not hold all the answers.”
Furthermore, private equity funds are caught in a catch-22, the report said. Their dependence on manual processes “creates an inefficient and ineffective means” to manage their reporting challenges.
If an overhaul is not a feasible option, EY said outsourcing some of these functions could be a viable alternative.
Surveyed investors were comfortable with outsourcing certain operations including tax compliance, treasury, fund accounting, valuation, portfolio analytics, and risk management.
“This is welcome news to finance executives, who are burdened with capacity constraints and are eager to seek greater efficiencies and cost savings,” EY concluded.
Source: EY & Private Equity International’s 2016 Global Private Equity Fund and Investor Survey
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