The Institutional Limited Partners Association ("ILPA") has relaunched its cross-industry Quarterly Reporting Standards Initiative ("QRSI") which aims to deliver the next evolution of ILPA quarterly reporting. The QRSI temporarily paused the comment period on its draft updated ILPA Reporting Template and a new draft Performance Template, which were released for comment in June this year, following the US Court of Appeals for the Fifth Circuit ruling to vacate the US SEC Private Fund Adviser rules ("PFAR") as the ruling shifted the rationale for the changes to the quarterly reporting standards from compliance with the SEC requirements and opened the door for an "adoption focused approach" built on industry practices with more flexibility and scope to take into account IFRS and other international standards. Having made changes to the pre-PFAR court ruling versions of the draft templates with this shift in focus and to remove some of the requirements that were only there because the SEC was going to mandate them (although some requirements remain), the new comment period on the revised versions commenced on 5th August and is scheduled to last until 11th October 2024.
The QRSI is seeking input from ILPA members, general partners, service providers and other industry partners in the private equity sector on the draft templates. ILPA is aiming for the final templates to be published by the end of 2024 for implementation Q4 2025/Q1 2026 (which is a more relaxed timeframe compared to the SEC's March 2025 former implementation date), although the implementation date is one of the structural points that ILPA is consulting on, including whether it should be longer for emerging and/or mid-market managers. It proposes that the templates apply to new funds and those funds still in their investment period - but this is very much an open question and an important one which could result in existing funds potentially having to change how they report to investors. It is also seeking views on when new funds should start reporting performance data.
How are the templates changing?
The revisions consist of updates to the Reporting Template as well as a new Performance Template.
The changes to the Reporting Template are broadly to include enhanced reporting on partnership fees and expenses, expenses allocated or paid to the investment adviser/related persons by the fund and a streamlined NAV roll structure, and is the first update to the template since its original release in 2016. The template states in the guidance that sponsors should adhere to the reporting timelines agreed with investors and gives suggested timelines which it encourages managers to consider (departing from the SEC PFAR requirement to provide investors with quarterly statements for Q1 - Q3 within 45 days of quarter end and for Q4 within 90 days of the end of the fiscal year for funds other than fund-of-funds).
The new Performance Template, the first of its kind in the industry, is designed to standardise return calculation methodologies in private equity by "creating a framework capturing performance metrics and corresponding contributions/distributions". ILPA's recommended methodology on what to include/exclude in the IRR and TVPI/MOIC calculations is built into the template, which consists of three tables - cash flow table, fund performance table and portfolio performance table. ILPA is seeking feedback on the methodology as well as proposed optionality for reporting performance at the portfolio investment level.
The potential reach of these changes is wide-ranging and global - ILPA estimates that more than half of the funds in the industry already adopt the ILPA Reporting Template and the release of the final templates may prompt more investors to put pressure on sponsors to voluntarily adopt the templates as investors seek more transparency from sponsors.
ILPA is not alone in updating its reporting templates, Invest Europe published its new Investor Reporting Guidelines earlier this year. In updating the Guidelines Invest Europe considered the current ILPA templates and said that compliance with the new Guidelines would mean substantial compliance with ILPA information requirements. However, given the ILPA templates are changing, the Invest Europe Investor Reporting Guidelines will no longer be consistent with the ILPA information requirements. It will be important to aim to maintain consistency and/or interoperability between the ILPA and Invest Europe Guidelines.
ILPA wants to ensure that the industry's voice is reflected in the new quarterly reporting standards and is encouraging engagement with its survey on the templates. The greater the degree of engagement with the survey by sponsors and other stakeholders during the comment period, the more likely it is that the new templates will reflect an evolution of existing market practice, thereby ensuring that the new standards do not impose disproportionate administrative burdens on sponsors whilst at the same time ensuring that there is enhanced transparency and consistency in the way in which sponsors are communicating with their investors.
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