20-Sep-2023
Author: Omotola, Legal expert at GHC

Transparency is the foundation on which trust is built, innovation thrives, and collective goals of fund managers, founders and investors are achieved.  In today’s fast-paced and dynamic business environment, achieving success requires more than just individual talent and hard work. There is a unique demand for transparency in collaboration and coordination, especially in fund management operations. It is the goal of every investor that his/her investment is maximized for the best ROI rates. 

The interdependencies of fund management operations 

At its core, fund management operates a fluid system that requires interdependencies within teams. The fund management sector is very dynamic and ever-changing because market dynamics, regulatory environment and investor preferences are constantly evolving. To ensure collective success, dependency on each team member’s skill and expertise is of paramount significance. For instance, when a portfolio company (PC) is facing a major challenge which could adversely affect the value of the fund’s investment in the PC, the fund manager has to rely on the expertise of its entire team (e.g legal, investment, finance planning & analysis) to manage and advice such PC on the best approach to resolve such issues and preserve the investment (this is often referred to as Portfolio Preservation Management). This activity requires the entire team to remain current with vital information and industry trends to be able to deliver the required value. A hands-on approach and over communication within the entire team is essential at this stage for a proactive resolution of any identified challenge. A reactionary hands-off approach by a fund manager will result in economic loss for the PC which in turn will lead to devaluing the fund’s investment and consequently, the fund’s entire portfolio. 

Transparency in fund management means open and clear communication about management, performance, activities and objectives of investments within the team. Every team must have comprehensive and accurate information at all times. The unrestricted flow of information and elimination of silo operations creates a culture of open communication, effective teamwork, systemic reliance among others between all internal and external stakeholders. Transparency empowers the team to share insights, ideas, and concerns openly, more importantly, the collective intelligence of the team generates efficiency for smooth operations.  This is what guarantees success for both Limited Partners (LPs) [investors] and PCs [founders]. 

Achieving LP success through transparent operations 

Reporting and disclosures are great ways of ensuring transparency with Investors. It requires providing regular detailed reports on activities of the fund including fund performance, holdings, fees, expenses, potential risks & conflicts of interest, market conditions and other relevant metrics. Reporting may take the form of newsletters, investor update meetings, LP Dataroom housing various information about the fund’s investments and fund operations. Employing the various forms of reporting ensures the investors have current information on the fund’s operations and their investment performance. This in turn equips an investor with vital information to make informed decisions about their risk tolerance and investment objectives. Transparency with investors also involves addressing queries and concerns clearly and promptly. This promotes a culture of trust, reliability and confidence between investors and the fund manager. 

Achieving founder success through transparent operations 

Portfolio management is a key tool to achieving transparency with PCs. This involves establishing effective communication channels, sharing information, and encouraging open dialogue between the fund manager and PCs. Transparency between PCs and fund managers is the driver to value delivery and the quality of support given to the PC. By fostering effective communication, fund managers build strong relationships with founders and create an environment for long-term success and mutual growth.  It is imperative that the PC succeeds because their success is what guarantees the fund’s success and ROI to investors.  

In conclusion, implementing transparent operations requires a deliberate and proactive approach which is balanced by established guidelines for confidentiality and data privacy. Organizations need to foster a culture that values open communication and information sharing with the relevant stakeholders. This can be achieved through regular team meetings, investor update calls, collaborative platforms, and transparent reporting mechanisms. 

Sustainable practices for transparent fund operations  

1. Avoiding silo team operations: Always foster collaboration and cross-functional engagement within and across teams. This improves productivity, innovation, and cohesiveness of the fund operations.  
2. Ensuring your information is collected and stored using best practices for naming and structuring of collated information and documents: This facilitates efficient retrieval and utilization of information across teams.
3. Deploying transparent data collection and storage processes and systems for access by the entire team: This involves ensuring that information is available and accessible by the entire team. This could be through the implementation of a data management practice.
4. Self-sufficiency on an individual level is magical: Team members should be empowered to rely on their skills, resourcefulness, and available information to navigate challenges.   
5. Fostering internal and external responsiveness.: Cultivate the culture of proactiveness within the team, promptly addressing feedback, inquiries, and commitments. This builds agility and higher levels of operational excellence within the team. 

What methods have you deployed to achieve a successful post-investment operation in your organization? We would like to hear from you on how your organization supports its founders and investors.