Private equity industry to benefit from data format standardisation
The flow of information between general partners (GPs) and limited partners (LPs) in the private equity space would be considerably improved if the industry were to move towards further standardisation of messaging formats, according to Stuart Keeler, COO at eFront.
The software provider to the financial industry, particularly in the area of alternative investments and risk management, has seen the debate move on through the past half a decade, Keeler says.
Then it was concerns over transparency, and the sheer the lack of information being provided by GPs to LPs. Subsequently there have been recommendations and guidance from industry bodies such as the Institutional Limited Partners Association (ILPA). This, however, needs to go further, Keeler says.
“What we have is more standardisation, but what we don’t have is the standard,” he adds, “The subtle difference is the guidelines say you should report this or that type of information, rather than being more prescriptive in terms of saying how you should do it.”
“This takes us to a certain level, but it means for investors there is still a lot of manual processing, and for GPs they still have to respond to lots of variations on a theme for investors.”
One upshot of the current status quo is that, although larger European and US private equity investors have taken on board the recommendations and guidelines as they exist, large GPs may be producing 20-30 investor-specific packs of information every quarter.
For the LPs it means that, if they have 2-300 fund positions, they are getting the data in 2-300 different formats, Keeler says. The result is they spend a lot of time doing something that does not add a huge amount of value – such as reformatting – just to get some sort of data into their systems.
The situation facing the private equity space stands in sharp contrast to other areas of financial services. Keeler says that, for example, straight-through processing for securities trading would not happen if it were not electronic.