New Mexico’s $23 billion sovereign wealth fun has hired fund services firm Colmore to validate the fees it pays to its GPs, including carried interest expenses.
In meeting notes accompanying its decision, New Mexico State Investment Council said that “private equity costs are potentially incompletely reported by public investment funds. Fees, expenses, and carry are often offset against distributions, and may not be itemised in the reports. As a result, LPs may have accurate records of net returns, but have incomplete information about total fees and costs.”
NMSIC said that with non-traditional investments making up more than a quarter of its portfolio “it is imperative the council be able to analyse exactly what we are paying for those investments and to ensure that those costs are accurate and appropriate from a risk/return perspective.”
Colmore said it would provide fee collection and validation services for NMSIC’s entire private market portfolio. Ben Cook, its chief executive, told pfm that “many fee validation exercises over the past two years have found that some managers both undercharge and overcharge on carried interest and expenses. Having an independent third party validate these fees and incentive charges allows LPs to satisfy their fiduciary duty.”
Legal experts have said that the increasing complexity of carried interest structures is making it difficult for LPs to accurately compare the performance of funds.
Colmore beat fellow fund services firms SS&C and Pavilion to win the mandate. The sovereign wealth fund will pay Colmore $175,000 a year with an initial $30,000 payment.
The advisor launched its fee reporting tool, which enables LPs to cross-reference fee validation with peers in the same fund, in the UK last year.
Earlier this month the state investment fund approved a $60 million commitment to Bridgepoint Europe VI.