Mind the Gap A global survey of private markets reporting practices

1. Mind the Gap A global survey of private markets reporting practices Marija Djordjevic, Research Manager Presentation to 2019 Annual Private Market Conference 27/06/2019

2. Introduction • General partners (GPs) on a regular basis report on a fund’s activity and interim performance to limited partners (LPs) throughout the holding period. • Historically, the standard reporting instrument is provided as a bespoke fifty page document, which presents the information on cumulative financial performance of the fund over its lifetime, overview of the assets in the portfolio, insight into the prospects of the portfolio companies, as well as some other fund specific information. • Most common chapters: • Global Overview • Fund Overview • Investment Schedule • QR package also includes the financial statements and capital account statements for individual LPs. • In addition to proprietary Quarterly Reports, LPs increasingly request their GPs to provide more granular fund and asset level data, in the form of a Reporting Template, which is given in the digital spreadsheet format.

3. Quarterly Reports vs Reporting Templates PE EXAMPLE Fund level QR information RT additional information • Total commitments invested • Fund performance (IRR, MOIC and DPI) • List of new investments and exits • Organizational developments • Management company AUM • Number of investment professionals • Vintage year method • Geography, strategy and stage focus of the fund • Vintage year • Expected end date • Fund size • Number of investments • Cumulative net drawdowns and distributions • Management fees breakdown • Fee offset terms • GP Clawbacks • NAV breakdown by industry sector Portfolio Company level • Current cost of investment • Fair value of the holding • Realized value • Residual value • MOIC, DPI • Gross IRR • Company name • Date of investment • Security type • % Fund ownership • Capital committed to investment • Listing status • Industry classification • Number of board seats • LTM EBITDA • Multiple value • Deal source (auction, proprietary, etc.) • Initial control in deal (lead, minority co-investor, etc.) • Transaction lead professional

4. While QR remains the main source of data, adoption of RT brings strong benefits both for the LPs and the GPs Benefits for LPs • Avoiding the labor-intensive extraction of QR data and potential errors and typos. • Avoiding misinterpretation of reported information. • Digitalization and standardization of collected information allow for more sophisticated analysis. • Collecting consistent and granular information supports more fact-based and rational decision-making. • Reporting Templates are provided in addition to QRs, in the spreadsheet format, with more granular fund and asset level data. • Submitted in upon the LP’s request. Benefits for GPs • Reporting in a template format prevents the wrong interpretation and allows for better control of the data. • Enables the GPs to signal the better performance in greater detail. • Through digital data submission platforms, GPs can pre-visualize the types of analysis that their LPs will perform, allowing them to anticipate their questions. SOURCE: eFront

5. Analyzing GP reporting practices through the “3 C” lenses: Conformance, Completion and Consistency Conformance Completion Consistency How much information do GPs provide? How consistent is the information shared? How many GPs comply with their LP’s request to receive a reporting template? SOURCE: eFront

6. Conformance: Top quartile LPs can expect >70% of their GPs to conform with their reporting template requests Theme GP conformance rate achieved by LPs, by quartiles Conformance Conformance (in %) Completion 72.4% 52.2% 41.1% Consistency Bottom Quartile LP Median LP Top Quartile LP SOURCE: eFront

7. Conformance: Size matters to foster GPs to conform Theme Average AUM of LPs with more and less than 70% of conformant GPs Conformance Average LP AUM (in US$) 29.50BN +34% 22.0 BN Completion Consistency >70% Conformant GPs <70% Conformant GPs SOURCE: eFront

8. Conformance: Better performing GPs tend to be more conformant Average IRR of conformant and non-conformant GPs Fund size weighted average IRR of conformant and non-conformant funds Theme Conformance IRR Weighted average IRR +4,5% +10,2% Completion Consistency Non conformant GPs Conformant GPs Non conformant GPs Conformant GPs SOURCE: eFront

9. Other findings NA funds conformant in 34% cases more than European funds COMPLIANCE Conformance RE funds by 24% more conformant than IN and by 13% more than PE funds COMPLETION LBO and Growth equity funds by 45% more conformant than VC funds Completion Core and Value – Added RE funds by > 60% more conformant than the Opportunistic RE funds CONSISTENCY Consistency Funds larger than $10bn conformant in 22% more cases than their peers smaller than $1bn Conformant funds by 1 year younger than the non- conformant funds

10. Completion: With a template, LPs can obtain >70% more information than in a quarterly report Theme Completion rate for the all non-conformant funds, all conformant funds and a top quartile conformant fund Completion (in %) Conformance • Conformant funds provide almost 20% more of the total required information than non-conformant funds. • Of conformant funds, the top quartile funds provide 71% more information than the average non-conformant fund. +71% Completion 81.6% 65.4% 47.8% Consistency QR average completion rate RT average completion rate RT top quartile completion rate SOURCE: eFront

11. Completion: The more LPs pool their template requests together, the more information they can get Differences in completion rates between GPs with different number of LPs reporting to Theme Completion (in %) Conformance 7% 4% • With each additional LP receiving a RT in the same format from a GP, the amount of information submitted by the GP increases by more than 5%, on average • Small to mid-sized LP benefits from pooling with a larger LP when requesting data in the same format Completion 63.4% 59.3% 57.1% Consistency GPs reporting to 1 LP GPs reporting to 2 LPs GPs reporting to 3 and more LPs SOURCE: eFront

12. Here again, conformant funds provide more data and they provide it even more if they are better performing Theme Completion gaps between performance quartiles COMPLIANCE Conformance COMPLETION Completion 23.0% 17.9% 14.8% CONSISTENCY Consistency Bottom quartile performance Median performance Top quartile performance

13. Consistency: >1/4 of GPs do not share information consistently across their LPs Theme Proportion of funds that provide inconsistent information to different LPs Conformance Completion Consistency SOURCE: eFront

14. Consistency: >1/4 of GPs do not share information consistently across their LPs Theme The fraction of non-consistent GPs by geographical focus Conformance Completion 29.1% 26.0% 25.9% 20.0% Consistency NA EU APAC GLOBAL SOURCE: eFront

15. Consistency: LP size is the major factor that contributes to receiving the high-quality information Theme Average total AUM of LPs that receive reports from inconsistent GPs Conformance Average LP AUM • LPs that receive higher quality information have almost three times larger average AUM than their peers that receive lower quality or less complete information. • This finding reflects the stronger negotiation position of LPs with larger financial resources. Completion $ 64.1 BN $ 24.3 BN Consistency Receiving Quarterly Report or less complete info Receiving Reporting Template or more complete info SOURCE: eFront

16. Key takeaway & steps to improve the data collection process • How can you grow your information exchange sophistication? Key takeaways 3 1 2 4 5 • The use of reporting templates benefits the LPs by: • Avoiding labor-intensive and error prone process of data extraction • Supporting the sophisticated analysis of standardized and digitized data • Median LP has more than half of GPs conforming to their template requests and this fraction increases with: • LP’s size of AUM • GP’s performance • The completion rate larger for conformant funds. They provide almost 20% more of the total required information. • More than a quarter of GPs provide inconsistent information to different LPs. • Get consensus internally for the need to collect granular and homogenous data across the funds you’re invested in, down to underlying portfolio company level • Choose the standard template you want to use • Resist the temptation to ask for non-standard data-points • Implement quarterly data collection process (including make or buy decisions) • Get prepared to engage with your GP to insist on the need for them to provide this data

17. Thank You madjordjevic@efront.com