How to turn the new SEC reporting requirements into a value-add

On August 23, 2023, the Securities and Exchange Commission (SEC) adopted new rules and amendments for nearly all investment advisers to private funds. This move has put the private funds industry on notice. According to the SEC, these rules “are designed to protect private fund investors by increasing transparency, competition, and efficiency in the private funds market.” Among other things, the “Final Rules” will:

• Require private fund advisers registered with the SEC to provide investors with quarterly statements detailing certain information regarding fund fees, expenses, and performance.

• Require a private fund adviser registered with the SEC to obtain and distribute an annual financial statement audit of each private fund it advises, as well as a fairness opinion or valuation opinion.

• Prohibit all private fund advisers from providing investors with preferential treatment regarding redemptions and information “if such treatment would have a material, negative effect on other investors.”

While the most important of these changes only apply to registered investment managers, the SEC will likely evolve towards greater transparency for non-registered managers and funds over time. GPs should also plan for heightened expectations from investors who expect the same transparency they get from registered funds for every private investment they make. Investing in the best possible solutions to improve the entire investment lifecycle, from fundraising to reporting, makes good, long-term sense.

While these new regulations primarily affect registered advisors, investors increasingly demand better communication, direct access to information, and more frequent reporting from GPs, regardless of SEC registration status. Leading firms like RCLCO Fund Advisors (RFA) understand that communication is the key differentiator that separates top performers from the competition—whether it’s required by the regulators or not.

As Taylor Mammen, RFA CEO, said, “It starts with reporting—being able to provide financial statements and performance analytics quickly. Sounds super simple, but not many do it very well.” For Mammen, quarterly reports are the bare minimum. He believes GPs must deliver ad hoc communications when breaking news leaves LPs with questions, have qualitative discussions that get at the story behind the metrics, and host deep conversations about the fund’s strategy if and when it evolves.

The more information you can provide, the stronger the relationship with your LPs becomes.

Whether you’re striving to meet investor expectations or regulatory standards, relying on manual, human-intensive processes is incredibly time-consuming and error-prone. Even simple mistakes can significantly impact the investor experience and cause reputational damage, keeping LPs from committing to your next fund.

Greystar approached Juniper Square in 2021 with the goal of replacing cumbersome workflows with automated document generation to reduce time, error, and risk. “We are very sensitive about sending out investor-specific documents, including capital call and distribution notices, partner capital statements, and tax forms,” said ​​Senior Director of Investor Relations. Alexis Sowuleski, CFA. “Given the number of different teams involved in creating, reviewing, and sending investor-level notices, we needed to make sure we didn’t add extra work to any of the processes. Our accounting and tax teams were also very focused on making sure no investor might accidentally see another investor’s documents.” A centralized investor portal with purpose-built reporting tools was a huge boon for their team, increasing efficiency and accuracy.

A single source of truth helps minimize mistakes and streamline operations; a shared system of record with enterprise-class controls ensures the right information flows to the right people and there’s a log of when they received it.

With the right technology, communication is made easy. LPs can get direct access to data and documents (including quarterly reports and disclosures) so GPs can provide detailed and configurable performance metrics and share detailed asset reporting, including cash flows, debt summaries, valuations, and metrics to all investors. The right tools also save countless hours. Singerman Real Estate, for instance, used to measure the capital statement distribution process in days. Now, it takes minutes to create and distribute the statements with Juniper Sqaure’s suite of tools.

If you manage everything internally, you must be able to produce all the evidence and documentation the auditors need—on demand. Many GPs, especially those with lean teams, struggle to provide documentation that supports all material transactions and amounts that took place during the period under audit. The right technology can help you keep key asset data up-to-date by automating workflows and enabling the appropriate visibility and approval rights to reduce costly errors. It can also streamline tax and audit season by delivering structured records of your ledger directly to your advisors.

If you work with a technology-enabled fund administrator like Juniper Square, which combines expert accounting, treasury, and investor services with a modern portal experience, you can deliver a single view of your partnerships, ensuring the consistency and accuracy of accounting data, promoting collaboration, and integrating critical advisors into the workflows that will simplify the audit process.

Some managers mistakenly think that if they employ a third-party fund administrator to maintain their books and records, they are off the hook for the integrity and accuracy of financial reporting. But at the end of the day, the fund manager has a fiduciary duty to their investors, which means you are ultimately responsible for what is being reported. The right technology and tools will help you track, manage, and navigate the data across the entire investment management lifecycle and ensure ongoing success even as the regulatory landscape evolves.

Even if these regulations don’t apply to your firm today, they very well might in the future. And ultimately, meeting these SEC reporting requirements, even if you’re not required to do so, can become a selling hook for your fund. According to Preqin, almost 14,000 funds are in the market globally, seeking $3.3 trillion of new capital. However, H1 2023 data suggested that LPs only have an appetite for about $1 trillion—a 1:3 mismatch. The current fundraising environment means firms with good track records and long histories can raise funds—despite the industry-wide gloom and doom—but those without these attributes face a long, hard slog. Everything you can do to differentiate your fund and your firm matters in today’s macroeconomic landscape. More meaningful communication, a digital portal experience, and streamlined operations can have an outsized impact on your long-term success.

Join us on Thursday, October 19th at 11:30 AM PT for a live webinar with leaders from CohnReznick and Gibson, Dunn & Crutcher LLP. Our panel will take a look at the latest SEC regulations and explain what they mean for the private markets, as well as share best practices for planning season and how GPs can lay the foundation for a better tax and audit season. Register today →