Fund reporting, regulation and technology - a primer

Limited Partners are increasingly focused on understanding not only fund performance for their investments, but also the performance of their portfolio companies. Fund reporting quality is mixed, with regulators focused on improving visibility within private markets. Here we'll explore some of the trends in fund reporting, regulation and technology.

Evaluating the performance of funds is an integral part of any Limited Partner's investment management, and performance reports offer investors the ability to assess their investments alongside one another. To protect investors, governing bodies have also outlined sets of standardised, industry-wide ethical principles that guide investment firms on how to calculate and present their investment results to clients.

One framework is the CFA Institute's Global Investment Performance Standards (GIPS). Not all funds have embraced these standards, and among those that have, interpretations can vary. This has led to variations in the terminology employed, and the assumptions underlying reported data. Furthermore, file types used for reporting can range from PDFs to Powerpoint presentations and Excel files. This leads to a significant degree of unstructured data, making standardisation hard for many firms.

All of this makes assessing investment performance a difficult undertaking, with potentially adverse outcomes. In 2021, the Financial Conduct Authority (FCA) highlighted inefficiencies within fund processes, leading to incomplete assessments of value. This finding emphasises the need for improvements. Many firms have begun to recognise the issues and are actively engaging with initiatives aimed at improving and streamlining their processes. In recent years, escalating expectations from investors and regulators combined with heightened pressure on fees have made the need for change even more acute.

In this context, a major step forward is the rise of innovationswhich provide new tools to better handle data management, analysis and reporting needs. By leveraging these resources, investment firms are able to transform their approach on their assessment and reporting of fund performance. This brings a more efficient, transparent, and reliable system that stands to benefit both investors and firms alike. These technological advancements not only pave the way for improved accuracy and consistency in reporting but also free up valuable human capital to focus on higher-value tasks and strategic initiatives. The convergence of industry-wide standards, regulatory pressures, and technological innovation places the investment sector on the verge of a transformative shift.

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