Jul 19, 2023
It is important that you have a comprehensive overview of all your private equity investments for two reasons. Firstly, it is crucial that you always have an overview of your total unfunded commitment. This way, you always know precisely how much the funds collectively can call from you and thus, the size of the liquidity buffer you need to accommodate their calls. Secondly, a consolidated reporting provides you with the opportunity to compare the results of your various private equity investments.
Hang tight as we dive into seven things you need to be especially aware of when creating your own private equity overview.
Creating a comprehensive private equity overview is not as simple as just compiling the key figures from the different funds you have invested in.
The private equity market is not as regulated as the publicly traded market, where there are many requirements for how and when publicly traded companies should report, and how much information they should share.
There are thus no rules or common standards for how funds report on their investments. It is therefore largely up to each individual fund how they choose to report and calculate the various private equity key figures.
A significant part of the task of preparing a consolidated report for your private equity investments lies in ensuring that the key figures for the different investments are prepared on the same basis.
Additionally, there are other areas you should be aware of when preparing the report.
At Aleta, we have extensive experience in private equity reporting. Therefore, we possess a deep understanding of most private equity funds and their reporting practices. We use this knowledge to ensure our customers an accurate overview of their private equity investments.
In the following, we will explain what you need to be specifically aware of when creating your private equity overview. This will provide you with a solid foundation to maintain an overview of your private equity investments and compare their performance.
One of the most significant advantages of creating a consolidated private equity overview for all your private equity investments, as mentioned, is that you can maintain an overview of your total unfunded commitment. In this context, it is essential to be aware of whether you are meeting calls from the funds that do not reduce your unfunded commitment.
Calls that do not reduce your unfunded commitment can include costs such as management fees or interest expenses. Your Limited Partner Agreement (LPA) specifies whether costs reduce your unfunded commitment or not.
Management fees, for instance, can make up a relatively substantial portion over the lifespan of a fund. If this amount is not included in the commitment you have made, it can have significant implications for the liquidity you need to have available.
Therefore, it is crucial to be aware of which calls effectively reduce your unfunded commitment, and whether you need an additional liquidity buffer to meet calls that do not count towards your commitment to the funds.
It is essential to be aware that some distributions can be recalled by the fund. Your LPA specifies the circumstances under which recalls can occur. Additionally, the fund highlights whether a distribution can be fully or partially recalled in connection with each distribution.
If a distribution can be recalled, it means that you must be able to repay the distribution to the fund for the rest of the fund's lifespan if they request it. Therefore, the amount must be added to your unfunded commitment, ensuring that the figure consistently reflects how much the fund can call from you.
When creating your private equity overview, you should ensure that all expenses related to investments – and not just the contributions considered part of your commitment – and not just the contributions considered part of your commitment – are accounted for in your fund contributions. If they are not included, the gains from your investment may appear higher than they actually are. By incorporating all expenses in the calculation of the performance metrics in the report, you thus obtain the most accurate picture of how your Private Equity investments are performing.
If you have made investments using various currencies, remember to be aware of this when creating your comprehensive private equity overview.
You should include Market Value in both the currency you have invested with and in your local currency. Commitment, unfunded commitment, contributions and distributions, and returns should all be converted to your local so that your entire report is in the same currency, allowing you to maintain an overview of your unfunded commitment.
When converting to your local currency, you should consider the value of the various contributions and distributions in the same currency at the time of transfer, rather than the value when preparing the report. For example, it is irrelevant what a EUR distribution is worth in USD today if you received it a year ago and used it at that time.
The value of contributions and distributions at the time of transfer thus provides the most accurate reporting.
If you have chosen to hedge parts of your currency exposure, you should also include this in your overall results.
Everyone can make mistakes – including private equity funds. Therefore, it is essential that you do not simply accept their reports without question but instead verify that the numbers align with reality.
It is especially important to be attentive to whether the fund has deducted all your contributions from your unfunded commitment. Only when you have ensured that your contributions match the numbers reported by the funds, can you use the numbers in your consolidated report. After considering sections 1, 2, 3, 4, and 5 in this article, of course.
Interpreting individual capital calls from the funds can be time-consuming. They often consist of various components that can be challenging to distinguish from each other. Therefore, understanding what is being called for and comprehending notes can be difficult.
To create an accurate private equity overview, it is important that you interpret the fund's capital calls correctly.
There are many factors to consider when preparing a consolidated report for your private equity investments. Investigating them thoroughly and ensuring that all key figures across funds are calculated on the same basis can take a long time.
We can do it for you.
At Aleta, we have extensive experience in consolidated private equity reporting. Therefore, we have a good understanding of most private equity funds and their reporting practices. We use this knowledge to ensure that all figures in the reporting are calculated on the same basis.
This way, you get an accurate and comparable overview of the funds' results and your unfunded commitments.
With private equity reporting from Aleta, you always know precisely what the various funds can call from you and what their results have been.
This provides you with the overview and insight to make the best decisions for your investments.
Learn more about our private equity reporting here or contact us for more information.
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