(March 8, 2013) — Investors should be aware that a lot of private equity is just a cynical way to earn more fees for the fund manager, one of the UK’s leading pension fund CIOs has warned.
Steven Daniels, CIO of the £6 billion Tesco Pension Fund, told attendees at the annual National Association of Pension Funds (NAPF) Investment Conference in Edinburgh that in many cases fund purporting to be private equity investments were not actually that asset class at all.
“A lot of private equity investments are just a way of charging higher fees,” said Daniels. “We are happy to pay fees when the fund managers are sharing the risk, but this is often not the case.”
A year ago, Tesco began to build up its own internal asset management company and in January aiCIO revealed that the company had raided several London-based asset management firms to build up equity and bond investment teams.
Daniels continued to say that as capital requirements and risk controls on banks had cut back the financing these institutions were prepared (or able) to provide, pension funds were happy to pick up the slack–but not at any price.
“Pension funds are the new banks. We are long-term lenders and are happy to lend on the right terms–but we are not mugs,” he said. “We have to pay attention to everything we do.”
Earlier in the NAPF conference, investors heard from a private equity company who claimed investors could help support banks through equity investment rather than buying loans off their books and helping them to deleverage. World Trade Capital Partners said investors could commit capital to specific banking units, which would free up its own balance sheet to support other parts of the bank.
Daniels, who featured on aiCIO‘s Power 100 list of the world’s most influential investors, said investors were in an “era of low predictability”, which made decision-making difficult.
“When there is high predictability, investors can lock on to trends. It’s relatively easy to jump off at the right moment” he said. “When there is a hiatus and there is no trend, investing becomes very difficult – we just have to focus on our long-term targets.”
The Tesco Pension has been shortlisted for aiCIO‘s inaugural European Innovation Awards. The winners are to be announced on May 15 at an awards dinner in London. Click here for more information.
Related content: The Power 100 – Steven Daniels