Citco’s Complexity Corner: How to reduce reporting timelines in private markets

5 February 2024 - The sharp increase in private markets funds in recent years has led to an increased focus on quality data that is delivered more quickly, is more granular, and is transferred via Application Programming Interfaces or other automated tools in a more secure format.

One of the places where this issue is most visible is LP quarterly reporting deadlines. Whilst the constitutional documents of a private markets fund set out the reporting timeframes to LPs, managers and their asset servicer partners can now be facing condensed timelines much earlier than those stated in the Limited Partnership Agreements, primarily because of enhanced regulatory responsibilities from the Securities and Exchange Commission’s (SEC) new Private Fund Adviser rules.

The new quarterly statement rules, which come into force in March 2025 for registered private fund advisers, will cut the standard quarterly reporting deadlines for private funds from 45-60 business days to 45 calendar days. For those currently reporting outside these deadlines, this is a significantly accelerated timeline, especially when it is exacerbated by the additional granularity that the incoming SEC rules require.

Other factors are also at play. The rise in popularity of hybrid funds - which consist of both Liquid-Asset and Illiquid-Asset funds (our Hybrid Funds report looks into this in more detail) - are prompting some managers to push for monthly reporting in private markets, as opposed to quarterly, and there is no doubt the direction of travel is for faster reporting in general.

As such, there is now an increasing focus on automation and straight through processing, and end investors, regulators and other stakeholders, are asking to see action taken. Being agile, scalable and adaptable to changing market conditions and client expectations around reporting is becoming increasingly important both to managers, and to the wider market itself.

Considerations for reducing timelines – key steps managers can take

There are a number of actions for managers to consider when it comes to achieving a reduction in reporting timelines in private markets funds, including:

1. Process review; Undertake a full end-to-end review of the process. By focusing on processes that can be front-loaded, and by working with an asset servicer that has an understanding of critical path items, and potential redundant processes, can help to reduce timelines.
2. Focus on automation; Manual processes are not only inefficient, they may also lead to data quality issues, which in turn can necessitate re-runs of reports in a critical time period. Therefore, the more core processes that can be automated the better. Automation can be introduced in a number of areas, including but not limited to, waterfalls, equalisations, equity pick up and consolidations, Internal Rate of Return calculations and ingesting data from third parties.
3. Workflow Management; During the cycle, and in combination with the client, a clear workflow communications program is suggested, as well as a push to introduce changes in workflow timings, such as moving to daily or weekly intra-period bookings and reconciliations. Introducing an invoice cut off for the current period, as well as providing valuations by business day five, are also suggested.
4. Validations; Building a data validations dashboard that highlights exceptions focuses attention on possible data errors to be investigated before a reporting cycle begins.
5. Data Management; Data governance and the removal of manual intervention can help tackle volume related tasks quicker. For example, by importing data once, in a granular format that can be interrogated through multiple data fields, timeframes can be reduced. Utilising technology to flex the data to cover all standard, bespoke, ad hoc, and regulatory reporting data points, under multiple GAAPs, is another key consideration. Breaking this down into data in, and data out, the goal is to remove iterative work and focus on data quality to ensure it is provided timely and accurately. For example, investment transactions are a key data component that could be loaded directly into accounting systems, thereby removing the manual keying of data and multiple reviews of investment documentation by different parties. When it comes to data out, asset servicers should consider standardising the chart of accounts so they can produce automated reporting packs and financial statements that are validated.

These areas can all be addressed by utilising the right teams and the right technology. Below we explore these in more detail.

Expertise and knowledge of employees

Partnering with an asset servicer which has an experienced team with the right knowledge is key at every stage of the process as they can address problems quicker, understand potential pitfalls and address issues in a more timely fashion.

Collaboration

An experienced asset servicing team which closely collaborates with clients, coupled with a change in mind-set by all key stakeholders, is desirable to ensure the efficient flow of information and agreement of the treatment of bookings, in order to eliminate duplication of effort and maintain one true record.

It is also helpful to standardise and align investor reporting where possible, a factor which is in line with the aims of the new SEC quarterly reporting rules.

To provide the granularity of detail required for investor reporting, it is important that GP’s give thought on the best way to aggregate and report the data to their investors. One of those ways is for asset servicers to give GPs access to a centralized data warehouse. When data is centralised in such a way and overlaid with business intelligence tools, this enables interrogation of the data by GPs in an efficient way. They can then share this data with investors, and potentially give investors the ability to run their own reports and reduce the number of investor queries and subsequent additional reporting.

Technology

Technology has become central to alternative asset servicing, transforming many tasks via automation. When it comes to fund reporting, the Citco group of companies (Citco) has a number of proprietary tools to help cut down reporting timelines.

Not only can these tools be used to manage data as outlined above, they can also enhance communications between managers and asset servicers, streamline remuneration calculations, and improve interactions with end investors.

End goals

Once implemented, the condensing of timelines benefits all stakeholders, leading to a range of positives, including:

• Improved decision making
• Enhanced operational efficiency with improved resource allocation and productivity / efficiency
• Increased transparency
• Improved risk management and compliance
• Investor satisfaction
• Scalability
• Provision of granular information to auditors on a regular basis, reducing the year end audit burdens

Outsourced asset servicers can play a key role in delivering these reporting goals, and at Citco, the approach is to partner more closely with clients than ever before to deliver operational efficiencies that help to enhance reporting.

Going forward, Citco is committed to working with GPs on helping to streamline their reporting requirements according to LP and regulatory demands. By working with clients as true partners, and utilizing the latest technology and processes, we are aiming to achieve this and help the industry get reporting completed quicker than ever before.