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Fink says BlackRock advising private equity investors on fees

Laurence D. Fink

BlackRock (BLK) CEO Laurence D. Fink says private equity fees are too high and his firm is offering advice to pension plans that want to reduce fees.

Mr. Fink, who spoke Tuesday at a retreat meeting in San Diego for the $213.5 billion California State Teachers' Retirement System, did not identify any plans talking with BlackRock. But several sources said one is the $333.3 billion California Public Employees' Retirement System. The sources say the Sacramento system has been in preliminary discussions with BlackRock over a partial or full takeover of CalPERS' private equity program, which would be separate from BlackRock's existing $21.5 billion private equity fund-of-funds business.

Mr. Fink did not specify how BlackRock is working with the pension plans but did offer his view on fees: "If you believe that returns are going to be lower, then I do believe fees should be lower."

Pension plans such as CalPERS have lowered their private equity return forecasts for the next decade in part because of high valuations for portfolio companies normally taken over by private equity funds.

Mr. Fink specifically took aim at management fees being charged by private equity firms, noting that a typical 2% fee was necessary financially for new managers until performance fees started kicking in.

But Mr. Fink said now that private equity firms have "hundreds of millions of dollars" and company officials are buying "Bugattis and private art collections," it's questionable if the fees are still justified.

Mr. Fink did not criticize performance fees: "I don't think anyone should be against fees" when private equity funds perform well.

It was not clear if Mr. Fink was taking about conversations he's had with institutional clients in the firm's fund-of funds business or other institutional investors or clients. BlackRock has more than $5 trillion in assets.

Mr. Fink also disclosed Tuesday that BlackRock was several weeks away from making a major hire to head ESG efforts.

He said the election of Donald Trump has only interested more investors in ESG strategies.

"There has been a surge of interest," he said.

Mr. Fink did not offer specifics on how much of a pickup has occurred.