Before Pension & Investments congratulates public pension funds for releasing private equity returns ("Public disclosure," Editorial, Dec. 9), it is important to ask who will benefit from additional disclosure. Contrary to P&I's assertion that the public is better off with this information, the reality is that pensioners will be the ones hurt the most by this enhanced "transparency."
Private equity is a high-risk, long-term asset class in which performance cannot be judged until all investments have been harvested. Thus, any interim performance numbers reported will be misleading to investors.
It is easy for P&I to assert public fund managers should take more time to explain these returns to each pension holder, but in the real world of scarce resources it is in the best interest of all pension holders that fund managers spend their time maximizing investment opportunities rather than explaining the highly complex intricacies of an asset class that comprises no more than 2% to 3% of their money.
Confidentiality should be paramount to private equity investors because performance is dependent on the success of private company investment. If sensitive return information regarding these companies were revealed or somehow derived from public information, the companies' competitiveness and, ultimately, performance could be compromised. Most public pension managers have signed confidentiality agreements with private equity funds to protect the interest of these companies. In return, they get access to an asset class that historically has outperformed most others.
Lastly, we disagree with the proposition that public investment in private equity will grow unconditionally "as sponsors hope to revive overall fund returns." The economic reality is the opposite. As the private equity industry contracts to its pre-bubble size, there will be less fund raising required and more choices regarding sources of capital. It is in the interest of the public pensions to maintain relationships with the private equity community. To jeopardize these relations under the auspices of reform will ironically hurt investors who have benefited from the investment in private equity for decades.