Investing in any institutional market is perplexing. Investing in the global private equity arena – with limited transparency, benchmarking and guidance – is downright challenging.
The Institutional Limited Partners Association (the “ILPA”) just celebrated ten years of working to make private equity investing less mystifying. Originally an informal gathering of senior investors, the organization has become an even more sophisticated association that continues to provide a global platform for its members to collaborate and access institutional quality education and research.
Today the ILPA is the only global, member-driven organization dedicated solely to advancing the interests of private equity Limited Partners through industry-leading education programs, independent research, best practices, networking opportunities and global collaborations. The ILPA has over 280 institutional member organizations that collectively manage over $1 trillion of private equity assets.
In the remaining months of 2013, the ILPA will be focusing on four main areas:
- Standards: Further evolution of the ILPA’s industry best practices initiative to include development of a Standardized Due Diligence Questionnaire;
- Tools: Further adoption of tools to assist the ILPA’s members in applying ILPA Private Equity Principles 2.0 – in the areas of alignment of interests, governance and transparency – to their own investment strategies;
- Benchmarking: The release of an institutional benchmark relevant to private equity investors; and
- Outreach: The continuation of our education initiatives to external constituents that impact our industry
The release of the ILPA Principles and their resulting Best Practices in reporting continue to find their way into the mindset of General Partners. We are pleased with the response received to these new standards and now have over 283 official endorsers with additional endorsements coming weekly.
We have heard from across our membership, which has embraced the adoption of the ILPA Principles and Best Practices, and also from many in the industry, including General Partners, service providers, consultants and others. We will continue to be a resource for those looking to strive for Best Practice in their own organizations.
The next step in the evolution of the ILPA’s best practices initiatives was to minimize the administrative burden and increase efficiencies in the due diligence process. The ILPA reached out to General Partners, Limited Partners, placement agents and other interested parties to develop the recently released Standardized Due Diligence Questionnaire. The DDQ was released for a trial period to improve its efficiency and coverage, and it is available for download and review at ilpa.org/standardized-ddq/. We welcome comments and revisions, because we believe that feedback from interested parties can only produce a better product.
To assist members in applying the ILPA’s Best Practices to their workflow, we have developed an online rating model that members can use to note the presence (or absence), on a weighted basis, of key partnership agreement terms and provisions.
With over 70 questions highlighting 13 key areas within the alignment and governance areas of the ILPA Principles, the model not only provides members the means to rate the compliance of the partnership agreements of the funds in a member’s portfolio against the ILPA Principles, but also a tool to highlight areas of concern for future monitoring.
This tool is not a substitute for due diligence and document negotiation, but does provide a flexible model for the varying needs of a global and diverse membership.
Properly benchmarking private equity investments has been a challenge since the first successful portfolio company exit. Though recent years have shown a slow transition to absolute and public-market-equivalent benchmarks within the private equity community, there will always remain the need for relevant benchmarking. The ILPA announced last year that it had partnered with Cambridge Associates to create a measure that more accurately benchmarks the performance of institutional funds in the marketplace. Over the last year, the content and scope of this benchmark has been refined and several quarters have been produced to further assess the results.
The ILPA recently released the Q4 2012 results to its members and in the balance of this year, with the help of our members and the participation of the institutional fund community, we will focus on broadening coverage of the benchmark from the 2,000+ funds currently included to the over 5,000 funds in the portfolios of our members.
Education has always been a cornerstone of the ILPA’s mission. Over the last few years, the discourse on private equity has expanded from our small sphere to common dialogue in financial and political circles. This greater conversation highlighted the need for expanding the education platform to combat the negative press and misinformation about private equity circulating among global news desks.
We have been to Beijing several times to deliver customized seminars on private equity to local LPs and insurance companies and to meet with regulators in order to understand the nuances of investing in China for our members. In Washington, we meet on an ongoing basis with regulators, members of the media and key government officials. Our expectation is to continue this education in the best interest of our members and the asset class at large.
* * *
Private equity is built on partnerships and strong relationships between General Partners and Limited Partners. The ILPA will continue to focus its efforts on education, benchmarking and advocating the importance of private equity within a diversified portfolio. We encourage the continued participation of General Partners and Limited Partners in the industry’s march to standardization and widely accepted best practices.
Managing Director, Industry Affairs ILPA
Michael Elio joined the ILPA in 2012 as its Managing Director, Industry Affairs. Mr. Elio leads the ILPA’s programs around research, standards and industry strategic priorities. Prior to joining the ILPA he was a Managing Director and Partner at a private equity advisory firm where he served as the lead consultant to North American and European institutional investors committing in excess of $5 billion annually. For more information please visit ilpa.org or email Mr. Elio at melio@ ilpa.org.