Lee McCabe Argues Private Equity Needs Candor, Not ‘Transparency Theatre’

In a recent LinkedIn post, Lee McCabe argues that the private equity industry is failing its limited partners (LPs) by offering excessive, yet superficial, reporting instead of genuine, candid conversations about underperforming investments. McCabe contends that the current approach, characterized by an abundance of slides, dashboards, and detailed commentary, amounts to “transparency theatre” rather than true transparency.

McCabe highlights a common industry response to LP pressure for more information, which he sees as a misdirection. “Private equity keeps responding to LP pressure in the same way. More slides. More dashboards. More portfolio colour. More commentary. More words spent describing things in ever finer detail without saying the one thing everyone is actually trying to work out: What is not working,” he writes.

The Demand for Honest Signal Over Information Overload

The core of McCabe’s argument is that LPs are not lacking in data or information; rather, they are “short of clean signal.” He elaborates on this by stating that LPs do not need lengthy reports filled with carefully managed language to obscure bad news.

“They do not need 87 pages of controlled disclosure. They need one honest conversation about the deal that is drifting, the thesis that is wobbling, the management team that is not good enough, and the part of the original underwriting that now looks a bit stupid in daylight.”

According to McCabe, this type of direct, unvarnished communication is what sophisticated LPs truly value. He suggests that the current system of annual meetings and quarterly updates is designed to create an illusion of transparency, which is fundamentally different from being transparent.

Candor as the Foundation of Trust

McCabe questions the effectiveness of the current reporting mechanisms, noting the abundance of data, narrative, and professional explanations, but a distinct lack of candor. He poses a series of pointed questions that he believes represent the type of honest dialogue LPs are seeking:

“Which asset worries you most. Which CEO is not going to get there. Which value creation plan has quietly stalled. Which sector thesis has become a hostage situation. What you would not underwrite again at the same price. Where you have lost time that you are not getting back.”

As Lee McCabe asserts, capital allocation decisions are not based on the volume of reports a general partner (GP) can produce, but rather on the trust in the GP’s judgment. This trust, he argues, is not built through sheer quantity of information.

“And trust is not built through volume. It is built when a GP can say, clearly and without theatre, here is what is going wrong, here is what we have done, and here is what may still end badly.”

In McCabe’s view, such open and honest communication is the only meeting truly worth having, contrasting it sharply with what he terms “investor relations cosplay with graphs.” His post advocates for a shift towards genuine dialogue, where GPs are willing to discuss challenges and potential failures, thereby fostering a more robust and trusting relationship with their LPs.