Fund Finance

Private equity firms that do not sufficiently disclosure how they calculate IRR could face enforcement action, writes Vivek Pingili, vice-president of compliance at consulting firm Cordium.

Officials at the public retirement plan behemoth are set to provide feedback on Monday.

Guidance announced this week on how subscription lines should be used by fund managers comes at a time when the industry is getting to grips with best practice on this now controversial issue.

Quarterly reports to investors must be explicit on the use of subscription credit lines, while LPs must ask for data that discounts the impact of borrowed cash, the lobby group recommends.

Demand for subscription credit lines is now being driven by the needs of separate accounts, say Jeff Johnston and Mike Mascia of the Fund Finance Association.

Olivier Carcy, who oversees a $3.2bn private equity programme at wealth manager Indosuez, said LPs should be compensated for the use of their credit rating.

Firms should review whether capital from reinvestment or subscription credit lines should be included in IRR calculations.

Per Olofsson, head of alternative investments at the Swedish pension fund, said subscription credit lines should be used for capital efficiency and not to artificially boost IRRs.

The growing use of subscription credit lines deserves level-headed analysis.

Whether through subscription lines of credit or preferred equity, general partners are actively increasing their use of corporate finance at the fund level.