Elevating LP Portfolio Oversight Amid Updated SEC Transparency Regulations

September 13, 2023

Editor's Note: This post is the third in a four-part series titled "Unleashing the Power of Data: A Comprehensive Guide to Building Your Private Markets Data Strategy" that explores the importance of having a data strategy framework for private markets and why it is a topic of growing interest, published by Lionpoint’s Front & Middle Office team.

Previous posts outlined the importance of formulating a target operating model, choosing a system, and assessing data frameworks. In this post, we will dive into the elements of executing a data strategy program, highlight the benefits of implementing a data strategy, identify common complexities of an implementation, and detail best-practice implementation elements and methodologies.

On August 23rd, 2023, the Securities and Exchange Commission (SEC) introduced a set of rules aimed at enhancing transparency, competition, and operational efficiency within the private funds market. As part of this initiative, private fund advisers registered with the Commission are now required to provide investors with quarterly statements, furnishing specific details about fund fees, expenses, and performance. This move by the SEC underscores the importance of transparency and fairness in the evolving landscape of private investments.

With this regulatory shift, institutional investors gain a comprehensive view of their private portfolio. Considering this increased transparency and competition, adapting and improving strategies becomes imperative to maintain a competitive edge and secure alpha. The ability to harness a successful technological solution rapidly emerges as a crucial component in this new era of heightened visibility.

Key Considerations and How Lionpoint Can Assist:

  1. Data Strategy: To thrive in this landscape, Limited Partners can adopt a best practice data strategy that ensures access to accurate, timely, and pertinent data related to their portfolio companies. This involves:
    • Data Flow-Source Systems & Integration: Implementing systems and processes that enable seamless data flow from source systems into portfolio monitoring tools. This might entail integrating with portfolio companies’ systems or leveraging third-party data feeds.
    • Level data definition/taxonomy: establishing consistent data definitions and a unified taxonomy across the organization for precise categorization and easy retrieval.
    • Data Governance – Stewards & Business Rules: Instituting clear data governance policies that involve assigning data stewards and defining rules for data quality, access, and security.
    • Quarterly Statement Update: Private Fund Advisers must furnish quarterly statements to investors, detailing fund expenses, portfolio holdings, and fees. This enhances transparency and accountability, underscoring the importance of a data strategy plan to manage and maintain this information efficiently.
  1. Operating Models: Limited Partners can adopt a best practice tech/operation model to streamline their portfolio monitoring processes and improve their ability to analyze performance. This may include:
    • Cloud-based portfolio monitoring tools: Embracing cloud-based tools that provide real-time data access and automate data processing tasks.
    • Customizable Dashboards: Developing tailored dashboards to track key performance indicators (KPIs) and analyze trends across the portfolio.
    • Leveraging System and Service Providers: Tapping into available systems and service providers to enhance data management and analysis capabilities.
    • Restricted Activities: Under the new SEC regulations, Private Fund Advisers are now obligated to disclose compliance costs, secure authorization for clawback adjustments, and ensure equitable fee charging. Given these enhancements, it is imperative to establish a robust portfolio monitoring operating model capable of effectively managing and analyzing these fees.

By adopting a holistic approach encompassing data strategy, technology, and operational excellence, Limited Partners can significantly enhance their portfolio monitoring capabilities, enabling more informed investment decisions. Lionpoint Group stands ready to empower investors through a comprehensive suite of portfolio monitoring capabilities. If you’re eager to learn more about how our solutions can elevate your portfolio monitoring and decision-making processes please reach out to us.