Improving risk, control and performance measurement of illiquid alternatives for GPs and LPs

May 8, 2023

Oliver Freigang

CEO & Co-Founder

With an increasing amount of smaller investors having access to illiquid alternative investments, including private equity, private credit and venture capital, and with growing regulation in the sector, there has never been a more pressing demand to improve transparency and communication between GPs and LPs. A recent Oliver Wyman study predicts that individual investors will bring an additional USD $1.5tn to private markets by 2025, and the total AUM of private markets funds is expected to reach up to USD $13TN.

I recently had the pleasure of presenting at the 2023 BAI Alternative Investments Conference in Frankfurt, to talk about how technology can help in improving the risk management and performance of illiquid alternatives for GPs and LPs.

We believe the main objectives in improving in the alternative investment space are really no different to other areas in private markets. To highlight the complexity involved between parties, this illustrates an example waterfall scenario within a contract:

  • i. First, to such Limited Partner the extent of such Limited Partner’s Unreturned Capital;
  • ii. Second, to such Limited Partner, in an amount equal to the excess, if any, of (A) the aggregate Preferred Return of such Limited Partner, over (B) the sum of all prior distributions to such Limited Partner pursuant to this Section 7.01(b)(ii);
  • iii. Third, to such Limited Partner until the Limited Partner has received with respect to such Limited Partner under this Section 7.01(b)(iii), an amount equal to twenty percent (20%) of the sum of (A) the aggregate amount distributed to such Limited Partner under to such Limited Partner pursuant to this Section 7.01(b)(iii); and
  • iv. Thereafter, (A) twenty percent (20%) to the Limited Partner and (B) eighty percent (80%) to such Limited Partner.


Common challenges we see in the market:

Limited partners often do not understand all the risks involved in contracts, and processes are not clearly communicated, leading to frustration and dissatisfaction. Additionally, objectives and goals are often not clear.

Suggested path to improvement:

  • Partners should negotiate based on scenarios to understand all the risks
  • Dependencies need to be clearly displayed with the expected results. This includes monitoring regulatory changes and communicating them
  • The LP Hurdle definition should be based on an objective (e.g. index-based, IRR hurdle) and should include the metrics to be achieved, and how these are integrated into the waterfall


Common challenges we see in the market:

Partners cannot contribute their knowledge and signs of error are recognized, but not announced. Performance is measured in silos, without the big picture and there is key-person risk.

Suggested path to improvement:

  • Regular and systematic exchange between partners increases satisfaction and improves the flow of shared knowledge
  • Cultivate a culture that does not punish mistakes
  • Define overall KPIs
  • Knowledge should be represented at least twice, where each role/responsibility has a deputy


Common challenges we see in the market:

There are challenges with data security, lack of availability, reliance on manual spreadsheets and a lack of skills and expertise.

Suggested path to improvement:

  • Digitalization using secure cloud-based solutions
  • Automation of processes
  • Expert advice and consultancy

How we can help

We look forward to seeing many of you at future events in 2023, such as SuperReturn International in Berlin (June) and SuperInvestor in Zurich (November).

qashqade provides private market organizations an enterprise product suite for streamlining their calculation, allocation, tracking and reporting processes. Waterfall and carried interest calculations can be automated, replacing manual, error-prone spreadsheets and improving communications between GPs and LPs through enhanced reporting. Built by private markets experts, for private markets experts, the qashqade platform offers a flexible, modular based solution for fund managers, fund administrators and investors alike, and is asset-class agnostic. Contact us for a demo today.

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