Private Equity Investor Reporting: Benefits, What To Include, & More

July 5, 2023

Jonathan Charpentier

Private equity is a popular asset class, especially when markets are doing well. However, in recent years, more investors are demanding greater insight into how portfolio companies operate beyond the basic P/E ratio before allocating capital. 

As funding becomes more challenging to secure and investors scrutinize even more details, taking the initiative to update your investors with a private equity investor report makes the difference when building positive relationships and securing additional funding. 

Key benefits of private equity investor reporting

While there is no requirement for private and start-up firms to report to investors, the reality is the time and effort of producing an investor report leads to some substantial benefits. The relationship you build with investors can lead to the following: 

  • Trust and credibility with investors – Voluntary reporting shows investors that you have nothing to hide. The trust you build and the credibility you earn through these reports gives investors greater confidence in your ability to manage the business. 
  • Improved investor communication and retention – Regular reporting opens the doors for effective communication. And these reports can make it easier to retain investors once they allocate capital.  
  • A strong selling point for potential investors – Confidence from seed investors can rub onto other potential investors within their social network. Additionally, the ability to point to well-known investors makes it easier to attract new stakeholders. 
  • Enhanced decision-making through actionable insights – The details contained within your periodic or quarterly reports can arm investors with awareness, allowing them to take action when necessary. 
  • Access to expanded knowledge and help when needed – Strong investor relationships make it easier to access intelligent and experienced individuals who can provide assistance when facing challenges. 

Fostering strong investor relations can go a long way toward the success of your business. These relationships alone can account for a significant portion of the repeated venture capital invested in subsequent rounds of fundraising. 

What to include in your private equity investor reports

There are almost endless amounts of additional information you could send to your investors. However, there are a few KPIs you should include in every investor report you send. Send out a monthly or quarterly report to keep your investors in the loop with the following:   

ROI analysis 

Investors want to see they are making returns from the capital they invested, making an ROI analysis one of the most critical metrics to send in your private equity reporting. ROI analysis should cover the performance of portfolio companies over the last period or quarter. 

Company performance includes things like income, assets, debt, operating costs, and valuation. ROI analysis is a crucial component for investors to evaluate leadership’s ability to run the business effectively. 

An ROI analysis could also contain market sentiment toward the business, which can help investors or fund managers make investment decisions. Plus, the ability to manage market sentiment can prevent drops in valuation.  

Account statements

Regardless of the reporting process or frequency, perhaps no other collection of KPIs is more crucial for institutional investors than financial statements. Financial account statements are the perfect way to illustrate where a company's performance stands and provides projections on potential growth.  

According to the Institutional Limited Partners Association (ILPA), the financial packet is key to investor relationships and clarity of investment. The ILPA outlines best practices for capital calls, distribution notices, and quarterly reporting, which includes documents like:

  • Balance sheets
  • Period-end statements of investment
  • Statement of operations
  • Cash flow statements
  • Footnote disclosures 
  • Executive summaries
  • Portfolio company update

Of course, there are no requirements to provide these reports in private markets. Still, limited partners (LPs), general partners (GPs), and other stakeholders rely on this data to make informed decisions. These investors have knowledge and insight that can help if financial outlooks begin to sour. 

Another best practice to make quarterly financial reporting easier is to employ reporting templates that streamline the process. Each quarter, CFOs and other business leaders simply fill out the required information instead of building a brand-new report every three months. 

Individual investor progress

Understanding financial health is standard practice, but some investment managers and other investors will engage in a hands-on approach and take due diligence a step further. These private equity managers will check in with their investments personally. 

Larger enterprises with dedicated PR departments or investor relations (IR) teams may have dedicated phone numbers to connect with investors. Smaller organizations might utilize an investor portal where personal data, like a username and password, unlocks access. 

However you decide to communicate, individual investor progress updates help investment managers with asset allocations and private equity fund reporting. Adding investor progress is an excellent way to build strong relations between your organization and investors. 

Pertinent portfolio updates

A lot can happen in a period or quarter, and those events have a way of impacting investment performance. That’s why, along with financial reporting and ROI analysis, pertinent portfolio updates are a crucial component of private equity investor reporting. 

In your reporting, include a document that shares updates that are relevant or urgent to keep investors informed. These updates can include things like:

  • Changes in leadership
  • Real estate purchases or sales
  • Pending and critical inspection results
  • Legal action
  • Supply chain issues
  • Big company wins and losses

Including these updates in your reporting shows respect for the investor. While it feels great to share positives, not hiding the negatives helps build trust and opens the door for expert advice or resources to solve the underlying issues. 

Summary letter

A summary letter is an opportunity for management to add commentary to the periodic or quarterly update. In this letter, you can address management decisions, drivers of activity and performance, and an explanation of cash flow gains or losses. 

The summary letter is another ILPA-recommended document that companies should send to investors. However, some organizations opt to combine a summer letter with pertinent portfolio updates to minimize the size of the reporting packet. 

Know exactly where your investments are with Facta

Providing your investors with an update creates clarity, strong communication, and deep trust. It also goes a long way in securing follow-on funding during later rounds of fundraising. While reporting isn’t a requirement for private markets, these updates are a win-win for everyone. 

These vital components to include in your reporting packet range from financial data and ROI to intangibles like investor portals and status updates. Whether your investor is an individual venture capitalist or a private equity firm, don’t forget to include these metrics in your next report. 

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