[00:00:00] Joe Capobianco: Hi everybody. Welcome to the latest GPFS podcast episode. I'm Joe Capobianco, director of Data and Analytics at GPFS, and today I'm joined with my , co-host, Brad Aprerance, who will be discussing some of the latest ILPA updates that we've seen as part of the quarterly standards initiative. So Brad, you wanna give a quick introduction?

[00:00:19] Brad Aperance: Sure. Thanks Joe. I'm Brad Aperance. I'm one of the senior directors on the fund reporting side at GPFS. And today we're gonna talk about ILPA the Institutional Limited Partners Association. They have been working on what they call the quarterly reporting standardization Initiative. The ILPA reporting standards have been around for a long time. Most recently the latest templates that they've issued were as of 2016. But just a little bit of history over the last couple of years.

[00:00:49] Brad Aperance: The SEC a few years ago, came out with their new private funds rule. And the goal of this private funds rule is really to create more transparency and requirements around what fund managers advisors need to provide around both performance and fund activity to their investors.

This gave ILPA an opportunity to refresh and evolve their reporting requirements and to align everything together for the private equity industry. So as that continued to evolve and the SEC rule went through the finalization process, it was vacated by the fifth Circuit. So the rule is no longer going into effect. But ILPA did not want to let that stop them as far as using what the SEC had started as not so much a required SEC rule, but now just an industry guideline, best practices from institutional LPs perspective for reporting and striking a good balance between what you should be providing and being transparent about with practicality around what is not too challenging for a general partner to, to record and calculate on their side and making sure it's a good balance between the two sides.

[00:02:02] Joe Capobianco: So Brad, looking at why ILPA is making these changes what are they hearing from their LPs that are, is causing some of these recent updates and guidance to be released?

[00:02:13] Brad Aperance: Yeah, I think, based on what we're hearing in the ILPA conversations, one of the overarching concerns from LPs is that they're still not getting enough granular data, enough transparency from the gps.

[00:02:26] Brad Aperance: I think it's something where it continues to improve, but as the GPs may roll out new mechanics or new tools such as NAV loans or continuation vehicles or lead secondary transactions it's still something where there's a lot of better information they could be providing to the LPs especially around, just consistency in their performance metrics as well, to provide clean repeatable metrics that really can be apples to apples across the industry, whether it's from a first time emerging fund manager to a well-established manager on their 10th fund. In a period right now where fundraising is definitely over the last couple of years has been tighter, LPs are digging in more. They really want to make sure that they have confidence in what the GP is telling them. That they know how their dollars are being calculated and making sure that they have a clear idea of where the GPs intend to go from a reporting standpoint.

[00:04:39] Joe Capobianco: So Brad, you and I had the pleasure of being on some of the ILPA satellite conversations during the feedback period, and I think the two kind of big items out of that were updates to the reporting template, which as you mentioned, hasn't been updated since 2016, and then a brand new template which is the performance reporting template. Those are kind of the big differences that we've seen as part of this initiative. So Brad , what are some of the big changes that we're seeing ?

[00:05:05] Brad Aperance: Yeah so for those who are already familiar with ILPA's fee income template, it's not a huge change. So it's gonna be pretty familiar when you look at it. But what they wanted to do is ILPA was looking to provide more transparency and more detail granularity around a couple of areas specifically internal expense chargebacks, things that may be being billed internally within the fund manager or or with affiliated entities. So things like valuation costs, compliance costs but then also some more detail for external expenses. Breaking out certain expense categories like fund administration, audit, due diligence, a lot of the line of credit or the subscription line of credit detail around, line of credit interest, but then as well as what are the actual expenses legal fees set up with getting these lines of credit up and running. So you can really see the full fee drag specific to the line of credit and provide more granularity when it gets to the performance template around things like unlevered IRR.

[00:06:05] Brad Aperance: Those are some of the bigger changes on the fee income template, and there's some additional updates when it comes to showing subtotals based on gross of offsets or net of offsets, but nothing that's too drastically different from the 2016 version.

[00:06:22] Joe Capobianco: Yeah, I think our big takeaway from it was the expanded kind of expense detail, right?

[00:06:28] Joe Capobianco: And making sure that we can capture that within the data, and be able to delineate between the third party expenses versus the internal expenses. But beyond that it's really pretty consistent with with what we saw in the 2016 template. Just more detail around the expenses, which will hopefully save questions in the long run from having to to go back and recalculate some of those items.

[00:06:52] Brad Aperance: Yeah. We'll definitely, as a fund administrator we'll be going through and making sure that our clients are adjusting the chart of accounts where necessary, breaking out new GL accounts where needed, around the subscription lines and other areas. But you can never be too granular.

[00:07:07] Brad Aperance: We always tried from the beginning to, to do that with our clients to avoid having to do large historical adjustments like this. But the good thing is that that with the fee income template as far as the implementation requirements, it's really only for funds that have not finished their investment period yet.

[00:07:23] Brad Aperance: So if a fund is already far along and passed their investment period as of 1/1/26, you can continue to use the previous version, the 2016 version. But any new funds, they'll need to move to the to the new template to be compliant.

[00:07:40] Joe Capobianco: On the flip side, the performance template was an entirely new template, right?

[00:07:45] Joe Capobianco: So there's really no guidance or precedent around it. It's all fresh, it's all new. And we're working through some of the methodologies. I think one of the more interesting things that came out of the template discussion was the cashflow streams that exist within a fund.

[00:07:59] Joe Capobianco: And ILPA's really divided these two cashflow streams. One is fund to investor and fund to portfolio company. So Brad do you maybe want to go through a couple of those cash flow stream nuances and how the template identifies and thinks about each one?

[00:08:15] Brad Aperance: Yeah. And just, taking a step back, the performance template's brand new. This is something that, ILPA has never had any sort of ILPA standard for around performance reporting. But again, with the SEC's private fund rule that was rolled out and then vacated, but also other rules that the SEC has rolled out and have gone final and into implementation such as the marketing rule, that's really, some of the genesis behind this. Again, trying to come up with a standard that's consistent with regulatory requirements and making sure that this template works not just for, reporting for existing investors in your fund, but also, and more importantly making sure that it can also be adaptable to and be marketing rule compliant, so if you ever take this template and need to put it into a, marking a fundraising data room that you wouldn't have any issue. You'd be in full compliance with the SEC as well as ILPA when you're in those fundraising periods.

[00:09:08] Brad Aperance: But to your question, Joe, I think, around the fund cash flows, there, there are a few different concepts that, that ILPA's really emphasized, and that's, from an investor standpoint, the main concern is really the cash flows between the limited partner and the fund. So that fund level concept is really the key focus of a lot of the performance requirements that they're including in these templates. So that's really, specific to both your gross and your net metrics.

[00:09:37] Brad Aperance: Net performance, especially net IRR, that's a very common GAAP calculation. That's nothing really is changing there. But they also in, over the last few years, especially the net unlevered concept has become much more widely adopted in marketing documents in diligence requirements with DDQs from investors. So having both a net levered which is your GAAP IRR. As well as the net unlevered which would show you the performance of a fund without the effect of a subscription line of credit is becoming more commonplace, very ubiquitous to just most quarterly reporting from larger private equity funds.

[00:10:20] Brad Aperance: So that fund level concept, that's really where you're gonna see most of the work with the, these cash flow streams and calculations. But then you obviously have your gross portfolio level performance: your IRRs, your multiples. And that's something that is a little, more common portfolio calculations around the deals themselves, between the fund and the portfolio companies from a cashflow perspective.

[00:10:44] Brad Aperance: So that's gonna be what the general partners more commonly have already been issuing in their quarterly reports between the fund and the portfolio companies. But, with the latest FAQs that have rolled out from the SEC, they have provided some additional guidance and clarification around the marketing rule.

[00:11:02] Joe Capobianco: Yeah.

[00:11:02] Joe Capobianco: Thank you for that, Brad. From an FAQ standpoint, the SEC reversed course on their initial gross to net guidance. And it only needed to be done at the portfolio level, not necessarily the extracted performance. I think that's a key point, right? And it was received generally well from all parties in our experience. The GP the LPs any type of kind of governing bodies where it wasn't really a widely used data point. So they saw that they accepted it and then looked to provide something that was adding value both to the LP and the general partner.

[00:11:36] Brad Aperance: So the marketing rule, the latest FAQ mentioned and clarified that for certain areas like extracted performance, whether it's looking at realized portfolio, unrealized portfolio or single deals by themselves, you don't need to provide a net metric to go along with. The gross is completely sufficient as long as you are showing a net total portfolio metric.

[00:12:02] Brad Aperance: what you're seeing right now is a lot of the fund administrators, larger general partners they're starting to take these ILPA templates, put data into it, and see how it fleshes out as far as the the data, the presentation, does it make sense, does it not. What feedback do we need to send back to ILPA and get clarification on, or there changes that ILPA needs to make, just because it's not practical, it's not something that's easily collected any certain data points or is it something that you know, just isn't, providing value to the reader, to the limited partners, to potential limited partners and otherwise.

[00:12:36] Brad Aperance: So Joe, I know your team at GPFS is responsible for a lot of what I just said: taking these data points, making sure that they can be aggregated and put into different calculations and be usable for both the GPs and the LPs.

[00:12:49] Joe Capobianco: I was just thinking about that as you're talking. So really the only way that you can do this at scale is to automate these templates, and that starts with good hygiene around your data entry. Making sure that you can extract the data in a way that satisfies the granularity of the various templates. So that's one thing that we think about first and foremost at GPFS is if we're looking to automate are we building in all the appropriate data governance right around the entry process and and how are we capturing those entries? So I think it's pretty standard or commonplace to, to look to automate these these types of templates. And I know ILPA's thinking about it too, in the context of how can we make a template that satisfies all the requirements from an LP perspective, but that also doesn't overburden the fund admin or overburden the general partner who needs to provide this information, right? So that, that's one of the things that we're helping to implement for clients is the automation of the templates and quite frankly, just being able to extract a data set in a way where you can easily pivot it or manipulate it in, into the various forms that you need for this type of reporting.

[00:13:57] Joe Capobianco: We're actually focused on kind of the development side of these new templates and making sure that we're staying up to date with the latest regulatory as well as ILPA guidance that's being released here.

[00:14:09] Brad Aperance: I think anytime you have fewer data points to worry about is always a good thing.

[00:14:13] Brad Aperance: But with this performance template as far as the rollout timeline and the applicability, it would only be for funds that activate after 1/1/26, so you wouldn't need to worry about it immediately. And the first templates would not need to be delivered until 1/1/27. So really, you have about a year and a half to, to get all of your ducks in a row as far as looking at your data, making sure that it's clean, it's detailed enough, it has all the detail that you need around subscription lines and any adjustments that you may need for an unlevered IRR calculation. Making sure everything is tagged properly and working with your fund administrator or your LPs on any IR side discussions because again, ILPA is issuing this as a standard for the industry, but you may have certain investors that may have their own specific thought on it, or their certain way that they collect data in their own data infrastructure hierarchy. So you wanna make sure that, as you're rolling this out, if you're using it as a fund, standard that you're issuing it to all investors, or if you're only issuing it ad hoc based on the requirements of one of your larger investors that you walk through, make sure that they have clarity and they know exactly what you're doing.

[00:15:23] Brad Aperance: Are you making any adjustments, any sort of modifications to the template that may, require clarification that you definitely go through and talk to them about that. But really what we can do is make sure that we are, as an administrator, we are seeing how all of our clients are approaching these templates.

[00:15:40] Brad Aperance: We're trying to guide them and give them clarity on what direction we see the industry heading and where we see the clients heading with these templates, where are the pitfalls, where are the the benefits and making sure that, we're being as helpful as we can to to really push everybody forward, push our clients forward, and make sure that they are on the forefront of both from a data standpoint, from an IR perspective that they're not missing anything that can really help them in future fundraising periods.

[00:16:08] Joe Capobianco: Alright. And I think the last template, which is an existing template is the cap call distribution template. And that is currently in a comment period. Is that right?

[00:16:20] Brad Aperance: Yeah, so they're, they'll be looking through, as far as what ILPA is tackling next. There'll be plenty of adjustments that will come through I'm sure as we put more data through these new performance and fee income templates and beat them up a little bit.

[00:16:33] Brad Aperance: But the capital call and distribution template will likely be next. That one has not, it hasn't been updated in a few years itself. So it definitely will need to be refreshed to align with some of these new reporting standards. But, IP take in a little bit at a time not biting off too much with this.

[00:16:49] Brad Aperance: So more to come and GPFS will be continuing to join these satellite calls and the and committee discussions around where, these templates can be better automated. What granularity is helpful, what granularity is not helpful or just not practical to collect. And as new tools and new mechanics come out, like nav loans, and become more widely used. They'll always be the next thing that, that GPs are thinking about where they may need to provide more clarity and transparency to their investors.

[00:17:20] Brad Aperance: So Joe, as head of the data team at GPFS, what is the best advice that you can give to fund managers who may be fundraising, working with prospective investors institutional investors around maybe side letter requirements where they need to implement ILPA reporting or fund managers who may just be looking at ILPA as a good fund standard to provide to all their investors.

[00:17:41] Brad Aperance: What things could they think about when it comes to data hierarchy? And really making sure that they're flexible enough to meet the needs of their investors.

[00:17:50] Joe Capobianco: Yeah, it's a great question. So at GPFS we really don't care if you're first time fund manager or an established manager.

[00:17:59] Joe Capobianco: We structure the data in a way that gives you institutional type reporting from day one. And that allows you to meet these type of guidelines or regulatory updates from day one whether you need it or not. If you need it five years down the road, you'll be perfectly set up for it. If you need it from day one and you have institutional investors coming into your fund on day one great for you, ready to help you assist in all of those types of reporting .

[00:18:26] Joe Capobianco: From a data structure or data hierarchy perspective , we'll accommodate the nuance of the client, right? So if it doesn't matter if you're a VC client, a buyout client with a kind of a complicated structure we think about the data in a way that will satisfy all the regulatory requirements in addition to serving, as internal analysis for you as well. We're constantly working through, iterating with our clients, making sure that they have a solid foundation from day one. From a fundraising perspective I think one of the key things that we're looking at is, how are you solving your unlevered IRR, and what may have been a gray area six months ago with SEC marketing rules has, is a bit more solid. And there's more guidance around ILPA. We're working with our clients to update methodologies based on ILPA guidance released.

[00:19:16] Joe Capobianco: The thinking around that is really around the the credit facility cash flows, right? And being able to overlay those cash flows into the the LP capital call and distribution stream in order to extract that out in a nice, tidy format for the for the performance template.

[00:19:34] Joe Capobianco: So Brad, final thoughts around the templates. How are these updated templates impacting GPFS clients and, any thoughts around how we're positioning ourselves to to really meet the market here?

[00:19:45] Brad Aperance: Yeah, I think, these templates have been out in at least an implementation stage for a few months now since the beginning of the year. So we're still going through assessing, making sure that, we have a full understanding of what ILPA's intent is with their, as far as the presentation and the requirements and what LPs are really looking for to make sure that we're fully compliant with whatever ILPA is recommending, making sure that our clients are compliant. But I think, they're looking to make this the standard.

[00:20:14] Brad Aperance: Hopefully these new templates will help the GPS and the LPs become more aligned with what the investors are looking for, what data points they find valuable. But GPFS, as a fund administrator, we're gonna continue to sit in on ILPA's satellite meetings, making sure that we're staying up to date, that we understand where their thoughts are where the SEC's perspectives are making sure that we can stay on the forefront of those thoughts. And that really the cutting edge of really from a data hierarchy standpoint, making sure that we can enable our clients to, to quickly and implement these reporting requirements.

[00:20:52] Joe Capobianco: Brad, thanks for taking the time today.

[00:20:54] Joe Capobianco: We learned a lot about ILPA and I think one of the major things that we learned is that it's still an evolving landscape. So working with GPFS you're gonna ensure that you stay up to date on the most recent reporting and regulatory requirements. There's a lot of updates that we're currently implementing and developing and we're staying close to a lot of the other changes that are happening in the landscape.

[00:21:15] Joe Capobianco: Yeah, it's been a great conversation. Thank you.

[00:21:18] Brad Aperance: Thank you, Joe.