Ask many CFOs around the private equity community about how things have been over the last month or two and you may hear some of them singing the “Year End blues”.
This is not surprising, given the increased complexity and reporting requirements of today’s private equity fund structures. The pressure is on from multiple fronts:
The proliferation of co-investment and sidecar vehicles has multiplied the entities that are required to have an audit, putting pressure on internal finance teams. And there’s a requirement from the LP to have concurrent reporting rather than consecutive reporting – no LP wants to get the audited financials and K-1s from the co-investment vehicles weeks or months after the main fund is finalized.
The continued scrutiny of fees and expenses by the SEC and the LP community means more detailed information must be recorded, produced and maintained by the sponsor. Expense policies must be fully disclosed, fair and equitable to all entities within the fund structure, and followed to the letter, recorded in a fashion that makes it easy for auditors to review.
And reporting timelines are compressed, with dates for certain tax filings moved up a month.
Add to this the continued interest in specialized reporting, including reporting on the impact of fund-level leverage, investment performance broken out by a multitude of measures, and details on specific portfolio company KPIs and performance.
All these requirements leave less time for CFOs and their teams to focus on valuations, which is an area of enhanced and intense scrutiny for auditors and LPs.
It is increasingly clear that CFOs need to find efficiencies in books and records preparation so that they can invest their time next audit season ensuring reporting deadlines are met, that there’s complete accuracy and appropriate disclosures in the fund and related entity financials, and they have sufficient time to review and substantiate valuations and expense practices with auditors.