Inside the LP Mindset: Strategies for Building Resilient GP/LP Relationships

Hello and welcome to the SS&C Intralinks Fireside chat series. Inside the LP Mindset, Strategies for building resilient GPLP relationships. I'm Andrew Welch, Vice President of Alternative Investments for the Americas at SS&C Intralinks. And today I'm joined by Neal Prunier, Managing Director, Industry Affairs at the Institutional Limited Partners Association. Today we will be covering a host of topics, strategies on building strong investor relationships, health perspectives, fundraising trends, technology's role in monitoring portfolios, and recent ILPA initiatives and regulatory developments shaping the private equity landscape. So Neal, I will pass to you to introduce yourself.  

Hi, Andrew, thanks so much for the introduction and as always thrilled to have the opportunity to talk with you and the community with SS&C and Intralinks always, always a great opportunity. 

As Andrew mentioned, my name is Neal Prunier, Managing Director of Industry Affairs at ILPA. And the way I typically like to explain my role is I sit across both our bottoms up efforts with our standards and best practices as well as our top down efforts with our legal and regulatory affairs efforts. And so it's a great opportunity to talk about the topics at hand because they do really blend our work across standards and best practices as well as legal and regulatory affairs. It's not like a busy man. So as we sit here feeling the warmth through our virtual fireplace, let's tackle the first topic, fundraising. 

Everyone's favorite part of the process. So how is the slowdown in exits implementing LP allocations across different asset classes? And is liquidity as much of an issue as it's been in the past? Sure. And a couple words that I want to 0 in on there. Think about the response to this. The 1st is asset classes. So one thing to keep in mind right now in the current environment is that the sentiment when you think about private equity is different than the sentiment when you think about private credit. 

Private credit is performing at all-time highs and has a lot of deal flow taking place. Whereas in the private equity side have seen a significant slowdown in the rate of exits and in true distributions. And when I say true distributions, I mean companies selling our GP selling companies and receiving proceeds as a result a real distribution, not a continuation fund, not a NAB based facility to facilitate distributions. So this is then having an impact because of the return expectations, but then also fundamentally the money coming back to LPs via distributions is what feeds the next RE up, whether it be in the same manager and their next fund or whether it be in a different manager. 

So there is a direct connection between the slowdown and exits and then the LP's ability to make their next round of investments. So what we're seeing is LP's have to be that much more mindful about the size of the checks that they're writing as well as taking the considerations, potentially shrinking this number of commitments they're making and the number of GP relationships they have on an ongoing basis. Interesting. OK. Are you seeing a preference for specific investment structures? Things like Co investments, secondaries? For the LP's that are able to facilitate it, I think Co investments are always going to be one of the top priorities and that's one of the reasons LPs are making certain commitments is to be able to get Co investment opportunities. 

On the topic of secondaries, we have seen this become much more part of the normal conversation for LP's relative to years ago when an LP had maybe considered doing a secondary once but perhaps had not yet done one. Now LPs are starting to think about how we run secondaries as part of our annual positioning and annual trimming of the portfolio. And that's just a complete difference in how it had been a few years back. Interesting. OK, well as you know SS&C Intralinks, we've run an annual LP survey. We have a focus group of LPs, and we run the survey on an annual basis. 

And what we found is, is that Co investments came out on top 37%, followed by secondaries 24% and then a continuation funds at 11%. And then from an industry perspective, tech and healthcare were the top two sectors LP's looking to invest in. So that was pretty interesting. Can you share some updates on your standardized DTQ? Do you see adoption? What do you see in terms of adoption by the industry? Yes, we continue to see strong adoption on our standardized DDQ, which was last updated and released in 2021. And despite it being released about four years ago on an annual basis, it remains one of the most downloaded resources on the ILPA website from across the industry. 

When I think about adoption of the ILPA DDQ, I typically like to think of it as serving 80% of an LP's questions, recognizing that that 20% is always going to be unique data needs for an LP based off of what's important to them as an organization, their CIO, their particular jurisdiction, and different legal requirements. So that 20% of customization makes sense given the nature of the DDQ. But we do continue to see DDQ adoption be strong across the industry because of how important it is for LP's during their diligent stage of the process to get that level of information. But then also for GP's and the other providers, the benefits of having something standardized so that you can have a more consistent set of responses available and able to provide rather than needing to respond to ad hoc after ad hoc after ad hoc DDQ. 

Got it. Interesting. OK. So that is quite insightful there from a fundraising perspective. Let's move towards technology. So one of my favourite subjects, I've been working in this industry for 20 plus years now showing my age. But just a quick note to the audience, there is AQ and a section. So I do encourage you to post questions to that. We'll obviously have a conversation, Neal and I, in as far as I chat. I will endeavour to tackle your questions towards the end of conversation. 

So please do post your questions there. So technology, so obviously it plays a huge part in our day-to-day lives and particularly within the industry that we work with it. So how Neal, how has LP's demand for data shifted in recent years? What sort of data are LP's asking for from that GPS? Sure. That's a great question. I think in all facets of life; we've seen technology improve and the capabilities of technology be significantly enhanced in the last several years. 

And that's something that LPs are experiencing as well, especially as LP's have made the shift and, and this goes back more so 5-10 years, but making the shift to be much more comfortable with buying technology solutions than building internally. That has really allowed for groups like S, S and C, as well as others in the industry to produce technology for LPs that just have much greater capabilities. So when we think about the data for LP's, you know, even if we go to something like the DDQ, it's being able to take the DDQ out of a Word document and put that information into systems. So being able to have a lot more comparability across your entire portfolio is extremely important for LP's. 

One of the trends that we've also identified in some surveys we've done of our members is an increase emphasis on data related to fees and expenses, especially as more and more fees have been passed on to the partnership itself and not fully covered by the management fee. As well as data related to the impact of sub lines. Being able to better understand with and without performance, being able to get greater insight into future capital calls given the existence of a sub line. One of the areas that ILPA focuses on as an organization is across the tenets of alignment of interest, governance and transparency. 

And so when you think about the demand for data, there's been a real big increase in the number of tools used by GP. So not technology tools, but things like sub lines, continuation funds, NAB based facilities and so another area for LP's is just to make sure that they have the data to feel comfortable with these new tools that are getting used by GPS across the portfolio. Interesting. And a question that we're constantly seeing from SS&C interest perspective customers who ask themselves, do we buy, or do we build? Do you have insight into the LP community in terms of which direction they go? 

And obviously there's different factors in there, the size of the LP, right? But do you have a kind of insight into whether people are buying or looking to build internal solutions? Yeah. And following on what I highlighted before, we identified in surveys of our members an increasingly strong preference for buying technology rather than building it internally because of the solutions that are now being offered. You know, if you think about the late 90s, early 2000s, it made sense why a lot of LPs were building this technology internally given their ad hoc needs and given where the industry was in, in general. 

But we've seen an influx in the number of technology providers in this space, which means that the bar for the standard technology being provided has also increased significantly while the costs have come down. So yeah, so LPs across the board have been shifting to more of a buy focus than a building internally. Yeah, I'm glad. I'm glad to hear that. That's exactly what we're seeing, right. Customers are looking to buy, to focus on high value tasks and not from a technology perspective, but also from an outsource managed service perspective. Whether you know taking over postings or document aggregation, these are the type of managed services people are really looking to streamline their operation and focus on the revenue generating side of things. 

So that's interesting. And this is, yeah. And this is something that, you know, going back to the DDQ, we've added questions related to GPS and their use of third-party fund administrators versus doing the work internally. And one of the reasons we've added that question is because again, technology has become so much more common. And the thought being if this GP can't be best in class in doing it internally, why are they not doing it externally? And I think the same applies to LP's as they think about their operations. 

Can they be best in class internally in building these tools or if not, they should be working with an external third-party provider. And I would go out on a limb and say, you know, SS&C has many more technology employees than most LP's do. And so it makes sense to be working with third party providers because of the specialization and development work that is taking place across all these various platforms. Yeah. And obviously software as a service as of today, there's continuous innovations and updates coming and that's going to be cost to bear on the customers, customer side. 

So better to outsource that. So we've talked about the why. Let's talk a little bit about the house. How are LP's leveraging technology to enhance transparency and improve portfolio monitoring? Sure. So getting information is a key first step within getting information and we'll talk about this a little bit later on. But being able to have the data in a standardized format is so important for LP's. You're capturing information across your entire portfolio. So the less, the less amount of manipulating of the data you need to do to be able to make it apples to apples comparison, the better it is. 

So as LP's are able to get information in house in standardized format, it then allows them to look across their entire portfolio to understand key portfolio data points of your thinking about fees and expenses and performance, as I mentioned, but also sector exposure, vintage year exposure, geography exposure, so that they can understand how the full interplay across their investments. And a lot of LPs are doing this across not just their private markets portfolio, but then also seeking to do this across their entire investment portfolio to understand across their alternatives as well as their traditional long only in fixed income, what is their total exposure to a particular sector, to a particular country. 

So getting this data in in a standardized format is what's so important for LP's to be able to look at this information and make better decisions as it comes to RE UPS as well as then increasingly one of the other items you identified before continuation funds so that they can do the analysis on that particular company and understand what that does across their entire portfolio. Yeah, absolutely. Going back to the LP survey that we did the focus group, 95% of investors surveyed said that an aggregation tool for data across their portfolios would be helpful. And using technology can help them gather that information and make better decisions and say quick shameless plug here, but we are very excited to take to market a new solution called In View and this is a solution to help investors minimize the time it takes for them to aggregate information across all of their fund managers. 

This is obviously a task that by time consuming and error prone. So if you'd like to hear more about that, please reach out to myself or your local instruments representative. Shameless plug over. So Neal, what's emerging data or analytic trends are helping LP's make more informed investment decisions? Sure. And so, you know, I've referenced some of the different data points, but just to break it down as we think about it, you know, there's the fee and expense information that's typically at the fund level. There's the portfolio information, which is typically at the fund and LP specific level. 

But then where we've seen a lot of adjustments and developments is thinking about the portfolio company, portfolio investment specific data, because that's what really unlocks some of that more advanced analysis, looking at some of those sector and Geo exposures, looking at different risk analysis and looking at the drivers of performance at the fund level. So the more that this information can be granular, looking at portfolio companies when necessary and when possible, the better. Ultimately, what LP's want is data at their fingertips so that they can better manage their portfolio across the board due to the nature of private equity. You know, the more LPs, for example, can get information about the timing of upcoming capital calls because of the use of sub lines, the better. 

That allows LPs to manage their equity portfolio because they don't necessarily have to sell unexpectedly to be able to meet the needs of an upcoming capital call. So LPs are looking across the board of how to better understand their portfolio going into the weeds as well as starting to look out more from a cash management, total portfolio management standpoint. Very interesting. So you've got a really interesting perspective and fantastic view with the ILPA. Let's talk about some of the initiatives and industry standards. So can you share some insights on recent ILPA initiatives including media release reporting templates? 

How did you or how much did the now vacated SEC private fund advisor will influence your updates to the templates? Let's talk a little bit about that. Sure. So as a reference point, earlier this year and in January and we had some great representation from SS&C on our working group, we released an updated version of the ILPA reporting template that captures fee and expense information on a quarterly basis, as well as a new template that ILPA performance template to capture in essence inception to date on a quarterly basis. Performance across the fund looking at a set of standard performance metrics and in some ways, most importantly that the with and without performance all being done in a standardized calculation approach. 

So we released these new templates in January and they're going to be implemented for the first time. For the reporting template, the first time it will get delivered is one Q 2026, so after the One Q reporting period and the performance template will be after the One Q 2027 reporting period. So these are our key new templates to further push for transparency in the industry, giving LP's better access to the fee and expense information, especially as I mentioned before, because so much more is getting passed on to the partnership than it did in the past. As well as being able to get better insight into performance, especially the with and without because of how omnipresent sub lines are today. 

We released these templates this past January, so a couple months ago. This was based off of work that picked up in earnest at the beginning of 2024, and when we picked up the work in the beginning of 2024, we had one working group for each template. These working groups consisted of roughly 15 organizations each and we really tried to have a diverse array of participants. So we had roughly speaking 1/3 LP's, 1/3 GPS and a third service providers. We also had a steer Co and satellite groups that we worked with more closely. But when this picked up at the beginning of 2024, it was built around implementing for the benefit of the industry, the quarterly statements rule within the Private funded Advisors Rule from the SEC. 

We were very transparent, however, with all these various groups from day one that we planned on pushing forward the work, whether the rule was vacated or not. We felt that this new reporting represented the next natural evolution of the ILPA reporting standards and it was the right time to be pushing this forward and it was a major area of emphasis for LP's. So initially, the templates that we were putting together did mirror the requirements outlined within that quarterly statements rule. However, the rule itself was vacated in early June. And so at that point what we did was we took a temporary pause and we examined the templates that we had been putting together to identify where were we adding specific sections or structure or line items for the purpose of meeting the quarterly statements rule language versus where was their deep interest amongst LP's and GPS for an industry solution on the same data points. 

So we were able to make adjustments to the documents to create something that we think had a stronger orientation around an industry driven solution rather than fully meeting the requirements of the SEC rule. We then ran a comment period and got over 100 different submissions across the industry on our templates to eventually come to the final design that we released earlier this year. So it's been a long process that was a bit of a long-winded answer to, to replicate that the long process that it's been working on these templates. But we're really thrilled to be where we are today with the templates out, starting to talk even more closely with groups about implementation to drive adoption across the industry. 

Yeah, no, it's not long winded at all. It's a very interesting deep topic in the open, being a driving force in creating standardization in the industry. What other steps do you think needs to be taken to improve standardization and transparency in private equity reporting? Yeah. So you're realistically speaking, because of the rule being vacated and because of, you know, the decision from the 5th Circuit Court of Appeals, we recognize that there's going to need to be a much greater emphasis on efforts from the industry to push forward new standards. So I reference that part of my job is legal and regulatory affairs and part of my job is standards and best practices. 

Our view is that we need to be actively working as an industry to double down on the standards and best practices space because at least from the US perspective, some of those top down requirements from a regulatory standpoint might not be coming down the pipeline in the near future. So it's really important for the industry to work closely together. Anytime ILPA puts new templates out, we do actively seek to engage with not just the LP community, who are our members, but GPS and service providers. If we spend 6/12/18 months working on a template and nobody adopts it, that's not beneficial for anybody. 

So we want to make sure we're taking into the perspective the full industry, tapping into the experience, expertise and knowledge of the full industry and actively work together to drive this industry forward. There's more areas that we want to do this on. You know, we mentioned the DDQ before, that's one example of standardization, and it's been 3 or 4 years since we updated that. So at some point in the next two years, we should probably think about updating that again. There's such thing of updating these templates too often, but there's also such things as updating these templates too infrequently. 

So we want to make sure that we can get on the right cadence, identify the areas of most pressing need for the industry and work closely with stakeholders across the industry, LP's, GPS and the service providers that play such a key role to make sure that we can move forward with new templates and Dr. greater standardization and adoption in the industry. One other quick aside, you know, my past life oversaw the data operations at our consulting firm. So when you talk about the challenges of collecting data, I feel that deeply and I know that deeply. But when we think about, you know, the future of this industry, I will when I'm talking to different folks on the private equity side, you know, explain the concept of a mutual fund data feed and the idea that you can have one system, talk to another system and have the data flow through. 

And you can get live updates on all this various mutual fund data and all the various, you know, single position data that doesn't exist on the private equity side. The only way for that to exist as we think about, you know, the future and moving forward is to have greater standardization. Through greater standardization, it would unlock so much more possibilities from a technology standpoint, conceptually speaking. You know, if we think about how a lot of data gets reported today, we are going from 1 system on the GP side or the fund administrator side, putting that into APDF or into an Excel spreadsheet and then sending that through to the LP who then needs to be able to scrape that data or manually put that into their system to then carry out the analysis. 

The ultimate dream would be to be able to go from 1 system to another to allow for stronger data, more efficient and less error prone. And to do this, we need to work across the industry and facilitate even greater standardization and connection across all the key stakeholders. Indeed, indeed. Well said. So let's talk about regulatory environment. Good battle and different regulations are there and they have a big impact on us. So what regulatory trends do you think GPS and LPs should be most mindful of within the coming years? 

Yeah, so I want to answer this in in two ways and somewhat touched on this a little bit before, but it's important to think about this from yes, AUS perspective, but then we also need to be mindful of the global perspective. So on the US perspective, I did highlight the, the ruling from the 5th Circuit and the idea of, you know, the different associations that brought that suit being able to use and file suits in the 5th circuit on a go forward basis. So that realistically is going to impact some of the new rulemaking efforts that are underway. The, the new chair of SEC hasn't been fully voted in in on. 

We've got an acting chair who is a, a former commissioner at the SEC. And so we anticipate, you know, still finding out more about the priorities of the SEC. But realistically we do anticipate that there's going to be a bit of a slowdown on, on some of the regulatory efforts. When we think about this globally though, because this is a global investment community, that's not the case outside the US. So there's been in the news the last couple months from the US side of things, a lot of anti ESG and anti DEI rhetoric and policies getting implemented. 

If we think about the international landscape though, data on ESG and sustainability and climate change as well as DEI is only increasing in popularity, is only increasing in importance amongst both the, the regulatory community, but then also the LP community. So it's important for GPS to understand that, yes, what the US regulatory body say is important, but it's also important to understand what's going on to our neighbors in the north from Canada, across the pond in, in the UK and, and in the broader EU as well as in other jurisdictions. And then just to double down on my point before, while the regulatory environment might look a little bit different going forward than it did the last four years here in the US, we as ILPA see this as a tremendous opportunity and in many ways a need to do even more on that bottoms up standards and best practices work. 

I highlighted the three focus points for ILPA before cross alignment of interest, governance and transparency. And that's what we want to actively work with the community to drive forward. One of the reasons the SEC or the ruling in the first circuit came down the way it did was because it was identified that we are an institutional industry with sophisticated participants on both sides. So if that's the case, my challenge to the participants on both sides is to come to the table to work on making this industry more transparent, to help increase the governance and to help positively address the alignment of interest concerns that exist. 

Yeah, indeed, indeed. So LPs are the lifeblood of the GP and vice versa. So let's talk about the GPLP relationships. Critical. So what best practices should GPS follow to maintain strong long-term relationships with LP's and particularly in the environment we're in? The uncertainty of the markets, for example? Sure. So you know, we use a lot of acronyms across this industry and one of the sets that we've used the most in this call has been LP and GP. 

But I think it's important to dive into those of you know, general partner, limited partner and, and that partner and the idea of this is a partnership. Many of our member LP's have fiduciary responsibilities themselves. GPs have fiduciary responsibilities to the fund. And so when I think about what's important for the long-term relationships, it's the idea of treating it like a partnership between GPS and LP's. The analogy of it's a marriage is often thrown out there. And I think there is at times a lot of truth to that. You know, if you are making an investment decision as an LP to invest in AGP for a particular fund, that's going to be in the past 10 years now increasingly 12/13/14 fifteen-year relationship that you have. 

And then when you think about the opportunity for re-ups one, two, three years down the road with future fundraising from that particular GP that extends the time horizon even further. So what we always stress is the idea of treating this like a strong partnership, being able to work closely if you're a GP with your LPs, leverage the L pack, talk to your LPs about different questions, about different scenarios that are coming up to make sure that they feel comfortable not to use these too much. But I keep coming back to it because we really do feel that they're the lifeblood of the dynamic. You know, the idea of alignment of interest, governance and transparency, those are absolutely critical to maintaining those long-term relationships with LPs, especially when there is market uncertainty. 

Fundraising is taking place during the good times and the bad. So it's important to understand the different demands at place for LP's and it's important for everybody to work actively together. I know from having conversation with LP's, one of the discussions that day least look forward to is when they need to talk to AGP about trimming a future position or even not potentially re-upping in a position. And that's just a byproduct right now going back because of the exit slow down and some of the distribution slow down and the corresponding liquidity concerns and you know cash management concerns. 

So it's important for LP's to also talk to GP's about where they are and what's important to them. But just overall, much like any partnership, much like any relationship, communication is paramount to them. Yeah, absolutely. We're living in very interesting times, market perspective and macroeconomic political perspective. Question I always ask customers is what's your outlook for 2025? No one's got a crystal ball right, but I'd be fascinated to hear your view on what your outlook for 2025 is in terms of fundraising and exit perspective, sure. 

So I'm typically a big optimist. So I think hopefully that there will be an increase in deal flow as we head forward. One item I just want to highlight as we think about that is it's really important for there to be an increase in deal flow. It's been several years now where hey, we expected to get better by the end of this year or next year and several years where that hasn't really played out. And this is coming off the vintage years, you know 20, 2020-2021, 2022 when they were the biggest ever across the year in terms of the amount of fundraising and capital coming in. 

So we recognize that there is a lot of dry powder out there and investments to be made, but this is hopefully and I'm optimistic and, and there's some signs related to, you know, just the eagerness and I think the understanding of GPS that an increased deal flow is important for the long-term success of this industry. There's also, you know, some challenging signs. The amount of deal flow activity the first two months of 2025 was towards the, the lower end of the spectrum relative to past years. So expect and, and hope that as some more macroeconomic stability comes about that it will see an increase in deal flow. 

But that is still to be seen. I know we've asked our members about this in different surveys, and they've indicated that they anticipate that 2025 will be better than 2024 and, and better than 2023. And again, that was the sentiment in 2024 about the preceding year and, and few years as well. So I do think that there's optimism about it, but it's time for the GP community and, and trust me, all LPs recognize that the challenges in the, the industry right now. But you know, the GPS are getting paid, you know, good management fees and good incentive allocations to be able to operate really strongly during good markets and, and bad markets. 

And I think LPs are really looking for their GPAG PS: to be able to deliver in 2025 given what has been the experience the last couple years. So 2025 is going to be better than 2024. You heard it here first. We're going to hold you. This is being recorded. So as we take this fascinating conversation towards it, it's fine. Now one more question from me. So what qualities or characteristics are LP's prioritizing when selecting fund managers? 

Sure. So I think a lot of it does come back to some of those core tenets and it's the idea of what is the amount of dialogue and communication, what is the levels of transparency with this GP. You know, obviously the ability to provide returns is absolutely paramount when LPs are doing diligence and entering the, the fund fundraising process and, you know, analysis. But otherwise, you know, they really want to understand what is the type of dynamic that's going to exist between US and this GP organization for the next 10, eleven, 1213 years? What is the caliber of the reporting? 

What is the caliber of the communication and dynamics? You know, one of the items that LP's increasingly here more recently have had frustrations with is the use of NAV facilities. And, and not just the use of NAV facilities, but the idea of NAV facilities being used and LP's only finding out about it after the fact through detailed readings and review of financial statements. That doesn't equate to a good partnership. We've put out guidance and put out guidance last year on this topic related to, you know, when things should be brought to the LPAC for approval, when things should be brought to the LPAC in the LP base for transparency and the type of transparency on an ongoing basis. 

So these are the types of things that are really important to LP's and the challenge with pinning one down is the environment is constantly changing. These concerns with nav-based facilities didn't necessarily exist four or five years ago. They were starting to come up, but then it was much more about traditional sub lines. And so there's new tools getting introduced. And so what's important at the macro level again, are those, you know, the dialogue, the communication, the partnership, because that that's what gives LP's confidence that as these new tools get implemented in the industry, that the right amount of discussion and involvement of the LPAC and the full LP base is going to be present from the GP organization. 

Well, I've thoroughly enjoyed this conversation. Now, I think it's been really, really fascinating to get your insights from Milpa. You've got a really interesting purview across the market. So thank you very much for sharing your insights there if you have any sort of final comments. Let me know now, but I also want to thank the audience for your valuable time. We're very excited about how we can support both the GP and LP community. From GP perspective, we have a launching FundCentre this year. It's a single platform to support the full fund life cycle from marketing, onboarding to ongoing reporting and then in view and LP experience solutions, aggregate information across all fund managers. 

We're very, very excited about how we can support you and your goals this year. Neal, any final comments from you? No, it's been great having a chance once again to, to work with SS&C on this webcast as well as the opportunity to, to work with the team as part of the, the templates that we just released. You know, hopefully this has come across, but we're really passionate over here at ILPA about trying to make the industry better, not just for all LPs, but for the entire set of market participants and do really want to work across the industry. So welcome anybody reaching out if they have any questions or have any thoughts and really looking forward to continuing to actively work across the industry to try to make it a better place. 

Absolutely. You can find Neal on LinkedIn, Neal Prunier, ILPA, and Andrew S.R. Welch, [Vice President - Alternative Investments – Americas]. Thank you very much for your time. Have a fantastic day and see you next time on the SS&C Intralinks Fireside chat series. Thank you.