A recent survey of UK-Based GPs indicated that a growing number of LPs are pressuring GPs to increase their personal commitment totals in their new funds.

The survey included managers from the lower and upper ends of the market, but does not attribute the results to a specific investor size. That said, the average size of personal investment (£200,000; $316,000) seems most in line with traditional personal investment amounts found in the lower to mid-market.

Given the current economic environment, many Partners are facing a personal liquidity crunch and may not have the required cash readily available. Many specialty finance shops, including Investec, have experienced significant increases in demand from GPs, who seek financing to meet personal commitment requirements.

But what is truly going on with this?

The real question is whether fund performance will increase proportionally with the increased personal investment – or if it will increase at all. In other words, if LPs demand a 10% increase in GP’s personal commitments to a fund, will this translate to a 10% increase in fund performance (as measured by IRRs and multiples)? If this is the case, then likely we’ll see GPs rushing to invest more in their own funds.
Conversely, what if GP’s increased “skin in the game” makes them more risk averse in devising and executing growth strategies at their portfolio companies, given that they have significant personal wealth at stake.

The most successful General Partners have demonstrated a clear core competency around driving growth and creating value through operational improvements and M&A. Will additional “skin in the game” detract from the GP’s core competency? Possibly.

If requiring GPs to have more skin in the game makes them more risk averse in their strategies, then LP demands for increased personal commitment may not be in the best interest of fund performance, economic growth, and LP portfolio returns. Clearly, there is a delicate balancing act between having “enough” skin in the game to align interests, versus “too much.” Are better aligned financial interest and increased performance mutually exclusive? Not necessarily.

Are GPs committing more of their personal money because they believe in the benefits of better aligned investment objectives — or is it merely a method of keeping their investors content?

Food for thought.

To be continued…

Posted by: Justin Marchi

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An interesting article was recently written about the Teacher Retirement System of Texas “TRS” and two top Private Equity firms, Apollo Global Management “APO” and Kohlberg Kravis Roberts & Co. “KKR”.

To summarize, there was an explicit statement made that the committed capital agreements made from TRS to APO and KKR were to be compliant with all ILPA Principles. However, once the agreements had been executed, TRS expressed only compliance with “certain” ILPA Principles were contained in the agreements.

So why the change?  Is it possible that the natural order of the Private Equity Industry-wide agreements is truly bespoke? Perhaps.

With ILPA representing the sentiment of the LPs, most of the top GPs have recognized and endorsed the ILPA principles, but there is little to support public knowledge after these deals have been executed. The transparency that the industry has requested is not present in the TRS example above.

My take on this is —Opportunity. There is tremendous opportunity in monitoring and tracking the rhetoric of the industry versus the facts of the industry—“if what is being said, is what is actually occurring.”

The days of “Do as I say, not as do” are long gone.

Posted by Justin Marchi

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Historically, the SEC’s investigative reach was limited to firms that trade primarily in public securities, including mutual funds, hedge funds, and investment advisors.  As Private Equity becomes an increasingly mainstream asset class, SEC scrutiny grows – most recently around the industry’s methods of portfolio valuation.

As private equity firms have proliferated, state pension funds have begun funneling progressively more money into these investments.  According to Prequin, “large” Public Pension plans (defined as those firms with excess of $1bn in AUM) have an average allocation to Private Equity of 11.2% as of December 2011 – up 3.1% since 2001.  However, Public Pensions aren’t the only investors increasing their allocation to Private Equity.  The wave of Private Equity firms “going public” – including Blackstone, Carlyle, and others means that Private Equity can now directly impact “Main Street” investors.

Now that “Main Street” has a larger stake in the performance of Private Equity the industry is pressed for more transparency through the FOIA (Freedom of Information Act).  We are seeing a public outcry to ensure the policeman that patrols our streets, the fireman awaiting an alarm, and the teacher motivating our children all have security where their investment and retirement money is allocated.

The SEC has begun its initial ‘interviewing’ of Private Equity firms and their practice of valuing their investment holdings.  The questions provided to several PE firms requests information such as supporting evidence for the valuations of all fund assets and any document establishing an assigned value for any assets owned by the fund.  Here’s the kicker: For the past three years!

The Valuation process has traditionally been an art that is mastered by each PE firm in their own way.  In today’s world filled with Ponzi schemes and questionable ethical practices, the SEC wants to not only see the finished work of “ART”, but they also want to see the paint brushes used, the various hues of each color in the art, and if there has been a consistent use of artistic technique in valuations done across Private Equity funds.

Two questions clearly need to be answered:

1. How does a PE firm consistently and efficiently provide the information needed to justify its valuations to its internal and external constituents (SEC, Auditors, Valuation Firms), all while keeping costs low and data integrity high?
2. How does a PE firm accurately monitor the “true” numbers from the investment data collection process to the external distribution recipients while maintaining data integrity across all groups (Valuation, Finance, Investor Relations, Fund Accounting, etc.) within their firm?

The answer is simple:  iLevel Solutions

iLevel Solutions provides the flexibility to integrate any data point into any existing model or reporting package while providing the transparency required by the current stakeholders and potential stakeholders of their proprietary data.  By incorporating the iLevel platform, General Partners have the capability to provide an audit trail of its values in real-time, across standard and ad hoc forms, all while minimizing any disruption to its day-to-day workflow.

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NEW YORK, New York (February 7, 2012) – iLevel Solutions named Jim Weber Chief Financial Officer and Member of the Executive Committee. Mr. Weber comes to iLevel from FalconStor Software (NASDAQ: FALC) where he was Chief Financial Officer and Vice President of Operations.

Weber will report to Chief Executive Officer Rick Kushel. As CFO, he will oversee iLevel’s finance, accounting, and administrative functions. In addition, Weber joins the Executive Committee, which directs the firm’s strategy, planning and operations.

“Jim is a great hire for us,” said Rick Kushel. “We quickly realized that Jim was the right person for iLevel. While he was FalconStor’s CFO, the company’s revenue grew by almost 18 times. Jim’s proven success in scaling the finance and operation division of a rapidly growing software company is critical for iLevel.”

“Upon meeting Rick and the team I was immediately impressed with everyone’s drive and enthusiasm. You could almost feel the collective energy behind developing the platform and growing the business,” noted Weber. “Rick is passionate about providing the Private Equity industry with more a more efficient and transparent means of portfolio company management. He’s built a world-class team that is delivering solid results for our clients and our business. I’m excited to be a part of this organization and this rapidly-changing industry.”

Weber joined FalconStor in 2001. He served as the firm’s Vice President of Operations and CFO from 2004 through January 2012, and as its Worldwide Corporate Controller from 2001 to 2004. Prior to joining FalconStor he was the Worldwide Corporate Controller of theglobe.com, a publicly traded social networking site. Previously, he was an Audit Manager at KPMG and had several years of public accounting experience.

About iLevel Solutions

iLevel Solutions’ Portfolio Management Platform is an innovative, highly secure Software-as-a-Service technology solution that automates the collection, storage, collaboration, analysis, and reporting of portfolio data. iLevel provides the seamless platform that integrates all information for GPs and LPs to monitor investments, prepare and report valuations, and exchange information. This comprehensive, end-to-end platform serves as the backbone to completely integrate reporting, analytical tools, and dynamic information sharing, and includes components for Private Equity, Real Estate, Debt, and LP Reporting. For more information, please visit www.ilevelsolutions.com.

The Private Equity International CFOs and COOs Forum is the premier annual event for Private Equity Finance and Operating Professionals.  Now in its 9th year, this forum remains consistent with its founding principle: an annual meeting for those who deal with the operational, financial and legal challenges facing private equity firms today. This Forum consistently attracts an audience of over 250 CFOs and COOs from across the private equity and venture capital community. It is an opportunity for senior managers to share best practices and highlight thought leadership in the areas of private equity finance, operations, valuation, regulation, compliance, tax and many more increasingly critical functions within the firm.  For more information about the 2011 Private Equity International CFOs and COOs Forum, visit www.peimedia.com.

New York, NY (November 29, 2011) – iLevel Solutions, a leading provider of private equity software and reporting solutions, today announced that The Carlyle Group and Duff & Phelps have selected iLevel’s Portfolio Management Platform. The Carlyle Group, a global alternative asset manager, has selected iLevel to help automate the collection, analysis and reporting of financial performance information. Duff & Phelps, a leading provider of financial advisory and investment banking services, has selected iLevel to enhance its technology valuation and analytics platform. In addition to these commercial relationships, iLevel also announced the closing of an additional round of funding led by Carlyle and Duff & Phelps to support the continued development of iLevel’s suite of software products focused on the Alternative
Investment Management and Valuation markets.  iLevel now boasts an investor base that includes The Blackstone Group (NYSE: BX), The Carlyle Group, Duff & Phelps & Swift River Investments.

The Carlyle Group, which invests across four segments – Corporate Private Equity, Real Assets, Global Market Strategies and Fund of Fund Solutions globally – sought a solution to facilitate timely, accurate data collection, and transparent reporting. Carlyle selected iLevel to provide a comprehensive technology platform to achieve greater visibility into their investments while providing greater transparency, speed, and frequency of reporting to their investors.

“iLevel’s combination of technology and expertise will enable Carlyle to provide greater levels of transparency and more timely reporting to our investors while providing us with a platform that supports the continued growth of our business,” said Adena Friedman, Chief Financial Officer of The Carlyle Group, who is joining iLevel’s Board of Directors. She added, “This will better enable us to demonstrate the
significant and positive impact our portfolio companies have on the economies in which we invest. In addition to being a client, we are excited to partner with iLevel and support their leadership team’s growth agenda.”

Duff and Phelps’ Alternative Asset Advisory segment specializes in the valuation of complex and illiquid investments.  The iLevel platform will enable Duff & Phelps to collect, analyze and report financial
data more efficiently from a growing number of private equity and hedge fund clients.  Duff & Phelps selected iLevel to provide a solution that will further differentiate its market-leading approach to estimating, monitoring and supporting fair value conclusions.

“iLevel’s technology will enhance Duff & Phelps’ ability to deliver higher quality valuation analytics to our clients, while also providing us with a platform for developing and delivering additional services,” stated Jacob Silverman of Duff & Phelps, who is also joining iLevel’s Board of Directors.  “As a client and an investor, we believe strongly that iLevel’s offerings are key to bringing greater transparency and consistency to the alternative asset marketplace.”

The iLevel platform was incubated within Blackstone and spun out as an independent company in June, 2010. Harry Moseley, Chief Information Officer of The Blackstone Group and iLevel Board Member, stated, “We are delighted that The Carlyle Group and Duff & Phelps will be taking advantage of iLevel’s best-in-class portfolio management platform to enhance information transparency and reporting.  As investors, both firms bring extensive industry-specific experience to iLevel and will play a key role in the future development of the company.”

Rick Kushel, CEO of iLevel Solutions, said, “Carlyle and Duff & Phelps join a growing number of firms that are looking to achieve new levels of transparency, visibility and accountability. In addition to having both firms as iLevel clients, we are extremely happy to have the support of these accomplished and highly respected firms to help drive the next phase of iLevel’s aggressive growth plans.”

About The Carlyle Group

The Carlyle Group is a global alternative asset manager with more than $153 billion of assets under management across 86 funds and 49 fund of fund vehicles as of June 30, 2011. Carlyle invests across four segments – Corporate Private Equity, Real Assets, Global Market Strategies and Fund of Funds Solutions – in Africa, Asia, Australia, Europe, the Middle East, North America and South America. Carlyle has developed expertise in various industries, including: aerospace, defense & government services, consumer & retail, energy, financial services, healthcare, industrial, technology & business services, telecommunications & media and transportation. The Carlyle Group employs more than 1,100 people in 34 offices across six continents. For more information please visit www.carlyle.com.

About Duff & Phelps

As a leading global provider of financial advisory and investment banking services, Duff & Phelps balances analytical skills, deep market insight and independence to help clients make sound decisions. The firm provides expertise in the areas of valuation, transactions, financial restructuring, alternative assets, disputes and taxation, with more than 1,200 employees serving clients from offices in North America, Europe and Asia. Investment banking services in the United States are provided by Duff & Phelps Securities, LLC. Member FINRA/SIPC. M&A Advisory services in the United Kingdom and Germany are provided by Duff & Phelps Securities Ltd. Duff & Phelps Securities Ltd. is authorized and regulated by the Financial Services Authority. Investment banking services in France are provided by Duff & Phelps SAS. For more information, visit www.duffandphelps.com. (NYSE: DUF)

About iLevel Solutions

iLevel Solutions’ Portfolio Management Platform is an innovative, highly secure Software-as-a-Service technology solution that automates the collection, storage, collaboration, analysis, and reporting of portfolio data.  iLevel provides the seamless platform that integrates all information for GPs and LPs to monitor investments, prepare and report valuations, and exchange information. This comprehensive, end-to-end platform serves as the backbone to completely integrate reporting, analytical tools, and dynamic information sharing, and includes components for Private Equity, Real Estate, Debt, and LP Reporting.  For more information, please visit www.ilevelsolutions.com.

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New York, NY (July 20, 2011) – iLevel Solutions, a leading provider of private equity software and reporting solutions, recently announced the latest version of the firm’s Portfolio Management Platform.  This highly anticipated release incorporates new features and functionality that dramatically enhance how the Alternative Investment industry collects, analyzes, reports, and exchanges investment information.

 “With the growing demand for greater transparency and the challenges of increasingly stringent regulatory requirements, iLevel is focused on continually enhancing the functionality of our Portfolio Management Platform,” stated Rick Kushel, CEO for iLevel Solutions.  “This new release incorporates industry best practices and expanded functionality as a result of direct feedback from a growing client base of the world’s leading private equity firms.”  A short video highlighting the new release is also available by clicking on the following link:  iLevel Video.

Highlights of the new release include:

Streamlined Valuation Process

iLevel’s dynamic, configurable valuation templates provide a consistent, streamlined valuation process.  Increase efficiency and accuracy of valuations using iLevel’s Excel Add-In to quickly populate and update your spreadsheet models with data stored in the iLevel database.  Conversely, leverage iLevel’s Add-In to store key valuation data from your valuation models in the centralized repository for future reporting purposes.

Robust Excel Add-In Functionality  

With iLevel’s unique Excel Add-In, users can take advantage of formula wizards, a powerful calculation engine, and iGet^TM and iPut^TM functionality to access data from – and publish data to – the iLevel database. Users can leverage the iLevel Excel Add-In to analyze portfolio company performance, model valuations and respond to investor inquiries, all in a fraction of the time it would normally take to do so manually.

Dynamic Data Collection Workflow Tools

The iLevel Platform streamlines the portfolio company data collection process by enabling GPs to create dynamic Excel-based templates that can be scheduled and distributed to portfolio companies or internal users for monthly and quarterly data collection. These data templates are integrated into a workflow process allowing data to be efficiently reviewed and approved prior to being accessed for analysis and reporting.

Sophisticated Data Calculation Engine

A proprietary calculation engine instantly calculates user-defined formulas and aggregates data based on a portfolio company’s fiscal calendar as well as a standard calendar allowing for real-time access.  Reporting periods are automatically aggregated to summary periods including Quarters, Calendar QTD, Fiscal QTD, Calendar YTD, Fiscal YTD and LTM.  In addition, user-defined formulas allow for calculations across periods (i.e. Revenue vs. Prior Year) and across scenarios (i.e. Actual vs. Budget). 

SaaS-based Portal Framework for Web-based Data Presentation & Reporting

A configurable Web portal enables users to visualize fund and portfolio company performance through a wide variety of graphical charts and interactive data grids. Users can filter data based on industry, geography, and funds to drill down into data sets to gain instant insight from any perspective.  The iLevel portal also supports the ability to export data from data grids, charts, and graphs directly to Excel for further analysis. In addition, iLevel’s Report Center acts as an access point for customized reports that can be easily exported to multiple formats including PDF and Excel.

New Document Library & Publishing Capabilities

iLevel provides an integrated, collaborative Document Library to manage and catalog documents and files associated with a specific investment, portfolio or fund. With the Document Library users can take advantage of document management features including full text search and retrieval, check-in/check-out functionality, version history, granular security provisioning, and document tagging for easy document retrieval. The iLevel Publishing Tool enables users to aggregate worksheets from numerous Excel Workbooks and instantly create portfolio-wide PDF reporting packages for print or electronic distribution.

Powerful Chart of Accounts Management & Administration

The iLevel Platform comes out-of-the-box with a standardized, best practices-based Chart of Accounts management tool for creating and managing portfolio-wide, industry-specific and portfolio company-specific metrics.  User friendly tools allow for straight forward maintenance of the chart of accounts as data collection and reporting needs change over time.  A powerful formula and calculation wizard is also available to define and modify calculations, build formulas to aggregate data and to compare metrics and establish ratios for reporting.

About iLevel Solutions

iLevel Solutions’ Portfolio Management Platform is an innovative, highly secure Software-as-a-Service technology solution that automates the collection, storage, collaboration, analysis, and reporting of portfolio data.  iLevel provides the seamless platform that integrates all information for GPs and LPs to monitor investments, prepare and report valuations, and exchange information. This comprehensive, end-to-end platform serves as the backbone to completely integrate reporting, analytical tools, and dynamic information sharing, and includes components for Private Equity, Real Estate, Debt, and LP Reporting.  For more information, please visit www.ilevelsolutions.com.

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