More than 400 finance- and operations-focused alternative investment professionals gathered this week at New York’s Plaza Hotel for PEI’s 13th annual CFOs and COOs forum. With heavy hitting speakers from the Institutional Limited Partners Association (ILPA), the US Securities and Exchange Commission (SEC), leading alternatives firms and advisors, how best to advance best practice and add value to the partnership were at the heart of both days’ discussions.
Here are a handful of the mission-critical issues speakers and attendees were buzzing about:
• LPs are being more demanding
This is particularly problematic during the fundraising process, with many firms’ back offices struggling to meet investor demands. One delegate noted that requests for side letters from LPs have become unbearable. The question lingers as to whether GPs are equipped for the increased customisation and in-depth data demanded by LPs, and if any sort of template/standardisation might be a solution.
• Fees, restructurings and staples are under the microscope
The SEC will continue to focus on fees and expenses, particularly in relation to end-of-life funds. It is also paying extra attention to GP-led fund restructurings and stapled secondaries, which the SEC expects will only grow in number and importance as woes in the high yield debt market and volatility in Asia create difficulties to exit portfolio companies and could also trigger the dreaded ‘denominator effect’.
• Buy-in is lacking for ILPA’s fee reporting template
ILPA’s initiative to create a standard fee reporting template is moving forward, but several audience polls at the CFOs and COOs Forum suggested lacklustre industry engagement. Nearly half of attendees said they viewed the template’s release this past autumn as a negative development, while almost 80 percent admitted to not providing feedback when offered the opportunity.
• Excel isn’t cutting it anymore
The alternative assets industry has matured significantly over the past decade, yet it’s still stuck in Excel; some firms are starting to use technology and new software in a meaningful way but they represent the minority. The message at the forum was loud and clear: PE firms need to take technology much more seriously. “Technology is not a part-time job,” one delegate said.
• Cybercrime is on the rise
From phishing emails to complete highjacks of a PE firm’s server, cybercrime has become a pressing concern as firms realise they are highly unprepared for its dire consequences. Most GPs have no defensive measures or systems in place nor any cybersecurity insurance. One delegate noted that e-criminals not only want to steal money but in some cases simply aim to disrupt operations. “They just want to destroy your organisation,” one delegate said.
• New and smaller firms at risk
One of the many challenges of newly formed funds is a lack of back office resources. New or smaller firms can be very lean and struggle operationally, with CFOs wearing multiple hats and investment professionals often not fully aware of their compliance and legal obligations. This is expected to cause expensive (and reputational) problems for some funds and their investors down the road.
Stay tuned for more in-depth coverage on these issues in both PEI and sister title, pfm, which focuses regularly on the legal, financial and operational aspects of running a modern alternative investment firm.