Private equity firms and their investors should prepare for more fee disclosure, attendees at the Council of Institutional Investors spring conference in Washington heard Tuesday.
Ash Williams, executive director and chief investment officer of the $172.5 billion Florida State Board of Administration and moderator of a panel discussion on private equity fees, noted that aggregate assets under management have increased seven-fold in recent years and private equity has become a mature industry. “While that adds value, it also adds complexity. One can fairly say that more light should be shed in the areas of fees and revenues,” Mr. Williams said.
That would be particularly helpful for large public pension funds and other investors, where private equity has become a larger share of a portfolio, while the ability to oversee it has not grown as quickly, said Peter Freire, CEO of the Institutional Limited Partners Association. “I don’t think staff size has kept pace,” he said, speaking on the same panel.
Mr. Freire said he is “pleased with the breadth and depth” of investors approving the private equity fee disclosure template that his association introduced in January.
Adam Weinstein, managing director for New Mountain Capital, said his firm is now working through the template, which it supports. “Everything that’s in it, we have no issue with disclosing, and there are some areas where it could go farther,” Mr. Weinstein said. “We do have to kind of shed this idea that private equity is this black box.”
California Treasurer John Chiang said that between concerns over adequate retirement savings and responsibility for investing public assets wisely, “I think it’s (the ILPA template) a much needed step. We have to reflect the modern realities of 2016.” Mr. Chiang, who has proposed legislation for similar disclosure, said the template “saved my staff a lot of time,” but that trustees of public asset pools in California and elsewhere will continue to feel pressure for more disclosure.
While national standards of disclosure “would create greater uniformity about the private equity community … we have to move even if we can’t get national standards in place,” Mr. Chiang said.
Mr. Williams said that market forces and market leaders like California “will help move markets long before the regulators can get there. Let’s do our fiduciary duty and move forward.”