Download (IASB) Exposure Draft (ED 10), “Consolidated Financial Statements”

September 18th, 2009
International Accounting Standards Board
First Floor
30 Cannon Street
London, United Kingdom
EC4M 6XH
Attention: Ruane Barbara, Michael Buschhueter and Patrina Buchanan
Dear Sir/Madams
The Institutional Limited Partners Association is a not-for-profit association committed to
serving limited partner investors in the global private equity industry by facilitating valueadded communication, enhancing education in the asset class and promoting research and
standards in the private equity industry. ILPA has over 215 institutional member organizations
that collectively manage approximately $1 trillion of private equity assets. Our reach is both
geographically and organizationally diverse - ranging from large pension funds to
endowments, to single family offices – with global representation. The ILPA is therefore
particularly well positioned to comment on the “user value” of the consolidation of private
equity investments.
The ILPA is pleased to respond to the International Accounting Standards Board (IASB)
Exposure Draft (ED 10), “Consolidated Financial Statements.” Specifically, ED 10 asks
“whether the enhanced disclosure requirements for consolidated and unconsolidated entities
will give capital providers and other users of financial statements information that is useful for
their decision-making.”
In North America, virtually all private equity funds are required to report to their LPs using
GAAP accounting as specified in their partnership agreements. Such accounting requires that
private equity investments – often a majority of the outstanding voting shares of private
companies – be carried at fair value. This is the method of accounting that best meets the needs
of private equity investors, typically endowments, pension plans, foundations, insurance
companies, and high net worth individuals. Because private equity funds hold securities of
their portfolio companies for capital appreciation with a view toward returning realized gains
to investors over a long horizon, it is not appropriate to view these investments on a
consolidated basis with the activities of the fund or other portfolio companies. If private equity
funds were required to consolidate portfolio companies as contemplated under ED 10, it would
create significant difficulties for their investors and erode the relevance and comparability of the
financial statements.
In a previous filing to the Financial Accounting Standards Board in 2006, ILPA stated that LPs
depend upon fair value reporting on private equity fund investments to communicate reliably
and comparably with their respective stakeholders. Consolidation would impair LPs’ ability to
compare the performance of private equity funds to other asset classes and could also
compromise net returns as the cost of preparing unwanted consolidated financials is borne by
the partners in the fund. We have not altered our position.
The ILPA recently released the ILPA Private Equity Principles, a set of best practices that address
issues relating to fund reporting and transparency; a report that is particularly relevant to this
issue. We have attached that document for your review. You will note that the Principles also
include best practices around fund governance and alignment of interest between GPs and LPs.
Collectively the principles support and outline solid methods of ensuring open communication
and reporting which directly speaks to what the IASB is trying to achieve.
For reasons as noted above, IASB’s ED 10 should be amended to permit private equity funds to
report the value of their investments at fair value.
We thank the IASB for the opportunity to comment on the “user value” of consolidated
financial statements for private equity investments.
Regards,
Kathy Jeramaz-Larson
Executive Director
Institutional Limited Partners Association