Re: “Opening up private equity fees,” editorial, July 27, Pensions & Investments:
I couldn't agree more that plan fiduciaries should be accounting for and disclosing all the fees paid to private equity managers, including performance fees. And I am pleased to see that CalPERS is taking proactive steps to track and report all such fees. Their leadership should increase awareness on this issue, and may spur other plans to do the same.
But let's not stop there. Fiduciaries and plan sponsors both can do better at monitoring all the costs incurred by their plans — not only for compliance with fiduciary obligations, but also as plain old good-business practice.
Based on the findings from a survey that my firm recently conducted, we see that a lot of plan sponsors struggle to monitor all of the costs of managing their defined benefit plans. In many cases, sponsors didn't realize that investment management performance fees should be included.
But investment management is just one of 10 expense categories we covered.
In going through the survey process with plan sponsors, we discovered a number of reasons expenses were overlooked: no central point of data collection from various areas of the company that incur expenses; underrecognition of internal management expenses or of expenses paid directly by the plan sponsor; and lack of transparency on all fees, such as bundling of expenses for multiple services.
It is reasonable to assume that the plan sponsors who took our survey — which we believe is the first industrywide to address the full range of expenses — are more proactive generally than those who didn't take it. (The survey is free, and open to all U.S. defined benefit corporate plan sponsors.) We therefore would expect the problems to be more widespread than what we observed.
Taking your point that “what gets measured gets managed,” how can plan sponsors and fiduciaries take an informed view on plans costs — whether it be private equity fees or the full economic cost of plan maintenance — if they don't have a good process in place to identify and collect all the information required?
Principal, Penbridge Advisors LLC