EY: How to Bring PE Reporting into the 21st Century

Private equity funds need to invest in digital operations to meet investors’ demands for transparent reporting—or outsource.

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.

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“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.

EY Private Equity ReportingSource: EY & Private Equity International’s 2016 Global Private Equity Fund and Investor Survey

Related: Alternative Investing’s Slowdown& Private Equity LPs Pay $2B a Year for ‘Miscellaneous’

Sun Life Seals Dual Fund Buy-In

Canada’s largest ever bulk annuity transaction involves not one, but two separate pension funds.

Sun Life Assurance Company has sealed a C$530 million ($375 million) buy-in with two Canadian pensions, the country’s biggest bulk annuity deal to date.

The arrangement involves two unrelated—and unnamed—pensions with inflation-linked liabilities, and was completed last month.

In a statement announcing the transaction, Sun Life said it had “generated significant cost savings” that would not have been available with separate deals.

“A combined annuity purchase is appropriate for plans with indexing formulas that are related to inflation but are different enough to be complementary,” the company said.

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Brent Simmons, senior managing director for defined benefit (DB) solutions at Sun Life, said the deal was “in response to market demand for affordable solutions for inflation-linked plans.” A significant number of Canadian DB pensions have benefits linked to inflation.

“Plan sponsors are looking for creative ways to de-risk and this is just one example of how we can help them meet their objectives and focus on their core business,” Simmons added.

Last year was the busiest year for de-risking in Canada, with C$7.5 billion transferred, Sun Life said.

The country’s third-biggest insurer is no stranger to firsts: It was also behind Canada’s inaugural longevity swap with telecoms group Bell, worth C$5 billion, in March 2015.

Related: De-risking by Conference Call

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