ILPA Updates Boost Expense Transparency, Enable Better Performance Benchmarking

One of the biggest challenges that limited partners (LPs) have faced over the years is the heterogeneous nature of fund reports produced by general partners (GPs), particularly when it comes to detailing fund performance. This point was raised during an LP roundtable hosted by SS&C Intralinks last September. During the discussion, Petros Krappas, senior investment director, private equity, Cambridge Associates, remarked: “There is a bit of a mismatch between what GPs are providing and what LPs are asking for.” 

The Institutional Limited Partners Association (ILPA) has introduced a new performance template, which is expected to enhance LPs’ ability to monitor and benchmark funds by providing more granular and standardized reporting.

The new performance template introduces standardized metrics for performance evaluation, including internal rate of return (IRR), total value to paid-in capital (TVPI) and multiple on invested capital (MOIC). The template will allow GPs to report gross and net figures with and without the impact of fund-level subscription facilities.

“We’ve added more clarity and granularity related to subscription facilities,” says Neal Prunier, ILPA managing director of industry affairs.

The increased use of subscription lines prompted ILPA to consider how to update its reporting framework back in 2019. A more important catalyst was the SEC’s Private Fund Advisers Rule, announced in February 2022, which included a Quarterly Statement Provision.

“When we launched the updates project in January 2024, it was originally designed to help the industry implement these requirements in a consistent format before the rule was vacated in June 2024,” adds Prunier. “However, we wanted to move forward regardless, as we felt it was a natural evolution of the ILPA reporting standards.”

Improving transparency around fund expenses

The performance template is a new edition, while the existing reporting template has been updated to provide LPs with more detailed tracking of partnership expenses. This includes the breakout of internal chargebacks to identify expenses allocated or paid to GPs for work completed that are passed on to the fund, versus external partnership expenses. Previously, these were treated holistically without delineation.

“We believe we have done a good job of incorporating the spirit of the ILPA template, including a reasonable expense breakdown,” says the CFO of a U.S. mid-market private equity firm. “One point I would raise is the number of lines related to expenses relative to only a few lines detailing investment income. I understand LPs want to benchmark. However, every investment manager/strategy/industry will have different expenses for different reasons.”

Investors are broadly positive and see the reporting template updates, specifically, as a good idea in principle. 

“Over recent years there has been an increased focus on gross-to-net spreads,” remarks Reji Vettasseri, lead portfolio manager, private market solutions at Decalia, a Swiss investment manager and advisory group. “There is a growing realization it is not just about headline fees and carry, but also other charges and expenses at a fund level. There is also a deepening distrust of early net numbers that can be heavily distorted by capital call lines. It is welcome that the new ILPA frameworks aim to give improved transparency around these important issues.”

Investors think larger GPs with more substantial internal resources, both human and technology, will likely be better able to adopt the templates. But as the partner of a European private equity fund-of-funds group remarks, “It could potentially be an additional level of complexity for mid-market GPs.” 

“My hope is that these updates will be enough for a large number of LPs,” says the fund-of-funds investor. “In future years, it could be that there is more of a repository of data at the disposal of LPs, who decide to use their own AI agents to organize reporting the way they want it.”

Christian Schnabel, member of the managing board AIFM, Golding Capital Partners, Luxembourg, one of Europe’s leading independent alternative investment firms, says that the ILPA template update enhances fee transparency by providing more granular, standardized cost data “in a very systematic and intuitive way.”

“Large LPs stand to benefit most, as they can better compare and benchmark expenses across funds in their portfolios,” says Schnabel. “Smaller LPs may find it useful but face resource constraints in leveraging the data effectively. However, the ‘cheapest’ fund is not always the best fund. Assessing how much value costs incurred by funds bring to LPs remains a key step in a proper investment due diligence.” 

Standardizing cash flow and transaction metrics

As well as standardizing performance metrics, ILPA’s new template will also provide more insight into cash flows and transactions.

“For the first time in the industry, we’ve standardized the impact of each of these cash flows and transaction types on the given performance metrics,” explains Prunier. “If you think about net IRR or gross IRR or TVPI or MOIC, not everybody was having different cash flows impacted [in] the same way. This was particularly challenging when factoring in ‘with and without impact of subscription lines,’ which wasn’t always being provided to LPs because of the complexities of reporting this accurately.

“We spent a considerable amount of time identifying cash flows and transaction types, and even more time identifying how each of those should impact or not impact specific performance metrics,” he continues. “This allows LPs to get all the underlying cash flow information from the fund to investors as well as the end result performance metrics that have been calculated in a consistent, standardized format to make apples for apples comparisons.”

“This is important. It’s actually rare that you have subscription lines included in standard reports — you normally see them when a GP is fundraising.” Partner, European private equity fund-of-funds group

Such standardization will go a long way toward improving the analysis of GP performance across institutional portfolios and should make it easier for investors when deciding whether or not to re-up with existing GPs.

Investors with large portfolios have, until now, received reports in a myriad of different formats with different data points and levels of granularity. This creates a lot of system-mapping work. Now, LPs will be able to receive reports in a standard format that they can ingest even more quickly and with a greater degree of accuracy. This will significantly benefit GPs too, as it should lead to increased efficiencies, reducing some of the operational burden that comes with responding to high volumes of custom ad hoc requests.

ILPA has also introduced a second version of the template, called the Gross Up Methodology, for GPs who don't have as much granularity in their transaction types and cash flows. This should make mapping from the GP system to this new template much easier. Investors welcome the fact that the performance template will give more clarity of definitions.

“In a lot of situations, GPs do not try to hide the performance,” says the European fund-of-funds partner. “It's just the way they've been computing how they think it should be reported, and the definitions/categories they’ve used for many years. This template should bring more clarity.”

Timeline and implementation

The first delivery of the updated reporting template will be Q1 2026. The new performance template is technically for funds that launch on or after January 1, 2026. As such, investors can expect the first reports to be delivered in Q1 2027. GPs and their fund administrators will need to begin data collection in 2026 and continue throughout the year.

GPs can find all necessary templates and guidance resources on the ILPA website, including a decision tree to help determine which of the two performance templates to adopt.