Largest US public pension funds have 'no idea' of fees paid to private equity managers
The UK Financial times reported on July 12 that Calpers, the California public employee pension fund with over USD 300 billion in assets, has 'no idea' how much has been paid in fees and carried interest to its private equity managers over the past 25 years.
Calpers, which has announced plans to reduce by two-thirds the number of private equity managers it uses in order to reduce fees, currently allocates just under 11% of its portfolio to private equity. That allocation was scheduled to rise to 12% in 2015. Reducing the number of managers will not affect the total allocation.
According to the FT, Professor Ludovic Phalippou, a finance professor at the University of Oxford Saïd Business School, who specialises in private equity, said: 'Calpers' total bill is likely to be astronomical. People will choke when they see the true number.'
"He added that if a sophisticated investor such as Calpers faced difficulties in obtaining accurate information, then it could only be harder for smaller pension funds, endowments and wealth managers that are less well resourced.
"Mike Heale, a principal at CEM Benchmarking, a Toronto-based consultancy, said: 'Less than half of the very substantial private equity costs incurred by US pension funds are currently being disclosed.'"
A week after the Calpers story, Calstrs, the California teachers (and second-largest) retirement fund, admitted that it could not account for total fees paid its private equity managers over the past 27 years.
US regulators, who have been investigating and levying fines against private equity houses for failure to disclose fees, recently fined KKR USD 30 million for failure to adequately disclose fees on failed buyout bids over a 6-year period.