Buyout Firms Meet With CalPERS, Others to Discuss Private Equity

(March 31, 2010) – Pension fund giant California Public Employees’ Retirement System (CalPERS) and other investors met with executives from among the world’s largest buyout firms to discuss a range of “principles” introduced by the Institutional Limited Partners Association (ILPA).

The not-for-profit association’s mission is to restore and strengthen the delicate relationship between the endowment and pension funds that invest in private equity funds (the “limited partners”) and the private equity firms that invest and manage the capital (“general partners”). The ILPA, which represents investors, has introduced guidelines surrounding fund structures, which contains best practices relating to the alignment of interest between general partners and limited partners, fund governance, transparency and reporting.

The meeting’s agenda shows that private equity firms are taking ILPA’s guidelines seriously and that investors – pension funds, sovereign-wealth funds and endowments – may want more control over the terms private-equity funds set. The get-together signals a shift in the relationship between private equity firms and clients, who have traditionally accepted the terms managers proposed. After steep declines in buyout shops since ILPA’s guidelines emerged amid the financial crisis, The Wall Street Journal reported, firms found it harder to raise cash and some of the largest fund managers have made concessions to mollify investors.

The New York-based meeting, moderated by CalPERS Chief Investment Officer Joseph Dear, included discussions on regulatory issues, the fact that funds and investors’ interests should be aligned, and that changes in tax law should not be passed on to investors in a fund, according to the ILPA Web site. “Contrary to what has been reported in the press, the private meeting was not about fees but more about broader industry issues that have impacted private equity,” said ILPA Executive Director Kathy Jeramaz-Larson to ai5000. “It was a productive conversation.”

Attendees reportedly included investors and executives of Blackstone, Carlyle Group, TPG, Avenue Capital Group and Kohlberg Kravis Roberts & Co.

“We are very pleased with the level of support we have received thus far,” said Jeramaz-Larson in a news release. “It reflects the firm belief from institutional investors that adoption of the principles will help lead to a stronger, more sustainable industry and, ultimately, improved investment returns.”

ILPA has more than 230 institutional member organizations that collectively manage approximately $1 trillion of private equity assets.