State Pensions Demand SEC Action on PE Fees

A coalition of 13 public pension funds overseeing $1 trillion has asked the SEC to remedy “an uneven playing field” between private equity managers and investors.

Thirteen public pension funds have teamed up and appealed to the US Securities and Exchange Commission (SEC) to require clear and consistent fee disclosures from private equity managers.

In a letter to SEC Chair Mary Jo White, the state treasurers and comptrollers wrote that opaque and complex private equity cost structures have led to “an uneven playing field” between general and limited partners.

“It’s time to take the detective work out of how private equity managers report their fees,” New York City Comptroller Scott Stringer said. “Billing practices are cryptic at best and many partnership statements are so vague they could be considered purposefully opaque.”

In particular, the pension leaders wrote among the four types of private equity expenses, only directly billed management fees are regularly disclosed to investors.

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“It’s time to take the detective work out of how private equity managers report their fees.” —NYC Comptroller Scott StringerOthers—fund expenses, allocated incentive fees, and portfolio-company charges—are buried in annual financial statements and not detailed to investors on a quarterly basis, the letter said.

Furthermore, they argued the opacity in fee calculations has made consistent disclosure of private equity expenses to the public “extremely challenging.”

The management fees reported by state pension funds also generally fail to reflect the total accrued by private equity firms, the letter added.

“In the absence of a clearly defined standard, states that voluntarily disclose more comprehensive accounts of total fees and expenses are put at a disadvantage in state-to-state comparisons,” the state pension funds said.

The coalition included pension plans from the District of Columbia, California, Virginia, Wyoming, South Carolina, Rhode Island, Vermont, Nebraska, Oregon, Missouri, North Carolina, New York State, and New York City.