How can you report performance to investors in private equity without conflicts of interest?

2 Align your fee structure with your investors' interests

Another potential source of conflict of interest in private equity reporting is the fee structure of the fund manager. The typical fee structure consists of a management fee, based on the committed capital or the net asset value of the fund, and a performance fee, or carried interest, based on the realized profits of the fund. However, some fee structures may create misalignment or incentive problems between the fund manager and the investors, such as charging fees on unrealized profits, using high hurdle rates or preferred returns, or having complex fee-sharing arrangements. To avoid this, you should align your fee structure with your investors' interests, and make it clear and transparent in your fund documents and reports. You should also disclose any conflicts of interest or potential conflicts of interest that may arise from your fee structure, and how you manage them.

3 Follow best practices and standards for reporting

A third source of conflict of interest in private equity reporting is the lack of uniformity and comparability of reporting practices and standards across the industry. Different fund managers may use different formats, frequencies, and metrics to report their performance to investors, making it difficult for investors to assess and compare their performance. To avoid this, you should follow best practices and standards for reporting, such as the Global Investment Performance Standards (GIPS), the Institutional Limited Partners Association (ILPA) Reporting Template, or the European Venture Capital Association (EVCA) Reporting Guidelines. These standards provide guidance on how to report performance in a consistent, comparable, and comprehensive manner, and how to comply with ethical and regulatory requirements.

4 Communicate openly and regularly with your investors

A final source of conflict of interest in private equity reporting is the communication gap or breakdown between the fund manager and the investors. Some fund managers may withhold or delay information, or provide inaccurate or misleading information, to their investors, either intentionally or unintentionally. This may erode the trust and confidence of the investors, and damage the reputation and credibility of the fund manager. To avoid this, you should communicate openly and regularly with your investors, and provide them with timely, accurate, and relevant information on your performance, strategy, and portfolio. You should also solicit feedback from your investors, and address any questions or concerns they may have.

Reporting performance to investors in private equity without conflicts of interest is not easy, but it is possible. By following these tips, you can enhance your transparency, accountability, and alignment with your investors, and build long-term and mutually beneficial relationships with them.

5 Here’s what else to consider

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