Reporting, Data Security & Deal Flow Management: 2015 GP Survey by PitchBook
Introduction
As the debate around transparency intensifies, clarifying the key issues and concerns of both limited partners (LPs) and general partners (GPs) becomes increasingly important. Perhaps the paramount concern to both investors and fund managers is the proper management and dispersion of the correct information. There is plenty of concern around information sharing both internally and between portfolio companies. Both parties are paying increased heed to security, and rightly so, as every other week seems to bring new reports of confidential information being laid bare by external hacks or internal leaks. And that’s just one important matter to bear in mind. Intralinks conducted a survey of LPs last year, resulting in a variety of findings. The primary observations from that report were that the general industry trend is toward greater communication and transparency, even if there remains considerable progress to be made. Finally, implementing better programs for electronic reporting of quantitative information was a key concern.
With so many issues to consider, it seemed worthwhile to once again conduct a survey, assessing what common ground has been established and what further issues need to be addressed. This time around, GPs were surveyed, in order to provide a different perspective on these issues as well as a greater breadth of data. In addition, it seemed fitting to go further in depth with regard to specific communication and information sharing issues, such as whether data safety and security trump investor reporting as concerns. Intralinks and PitchBook conducted a survey in August and September of 2015, collecting over 100 responses from a variety of industry professionals. The following report includes a sampling of the full array of questions.
A few of the findings:
- 82% of respondents—primarily deal execution professionals—spend at least 25% of their time communicating with investors
- Over half of GPs spend as much as a quarter of their time communicating with portfolio companies
- 40% of respondents indicated their firm restricts access to filesharing platforms such as Dropbox
- About two-thirds of respondents indicated that nearly all deals that made it to negotiations closed—about 90%
- Key concerns for respondents were timeliness and clarity, with 69% combined stating those two areas are where their firm’s reporting could improve
The common thread running among all these responses was that although a majority of respondents are satisfied with current information security policies and practices at the firm level, there is room for improvement on multiple levels. This survey will hopefully contribute to the ongoing dialogue in the industry on what information policies and systems can best serve all concerned parties, as well as which issues should be addressed next.
For a baseline, it seemed worthwhile to establish just how much time fund managers utilize in communicating with investors, as well as portfolio companies. The results are intriguing: The vast majority of respondents indicated they spend up to a full 25% of their time communicating with investors. The proportions shifted somewhat when it came to portfolio companies, with no less than 29% spending between a quarter to half their time communicating with their investments.
On the surface, these results indicate fund managers do spend less time communicating with LPs than they do portfolio companies, but with so much time devoted to communication in general, the clarity and scope of information flow is a priority. With prior findings indicating that investment committees now want more regular updates—even extending to a monthly basis, when it comes to the private markets—there still is likely a disconnect between the expectations of portfolio managers and fund investors when it comes to the regularity and comprehensiveness of communication. But with GPs now looking for the best methods of sharing more information more frequently in order to address the concerns of their investors, improved reporting and collaboration systems remain in high demand, especially as the GPs that can do so will enjoy better relationships with their investors.
As was to be expected, by the time most deals make it to the negotiating table, fewer than 10% fail. With nearly a fifth of deals failing during the deal sourcing process, according to a majority of respondents, but only 4% during due diligence, deal makers seem to be exercising a fairly judicial eye even in the early stages of the deal flow pipeline. This is more a reflection of how investors in the private markets are tending to err on the side of caution nowadays, more than anything else. But even that caution could be leading to something of a disjunction in viewpoint, at least when it comes to bidders and targets. Given that fully 20% of respondents indicate anywhere between 10% and a quarter of their deals fail during negotiations, perhaps firms are growing increasingly wary and less willing to pay the types of multiples seen as of late. However, this could also indicate a failure to communicate in full on the part of multiple parties. With due diligence periods rising, given investor caution, and more information being shared, things can fall through the cracks unless there are comprehensive, standard baselines for data-sharing. Deals falling apart in due diligence could be due to a simple lack of efficient, accurate information flow. Furthermore, expeditious distribution of information can help improve the diligence process as well, leading to greater productivity and deals closing faster.
