The $16.45 billion Oklahoma Teachers Retirement System is considering taking on external back office administration support to identify and rectify errors.
At a meeting on Wednesday, Oklahoma TRS discussed issuing a request for proposals from qualified firms to provide “a wide range” of private market back office administration services, including operational due diligence, private market reporting and a central data repository.
Oklahoma’s private equity consultant Franklin Park, which manages 61 private equity funds for Oklahoma TRS through a fund-of-one structure, found four significant errors in the pension plan’s private markets investments last year as part of its operational oversight.
A China‐based venture fund in Oklahoma TRS’s FP Venture 2015 vehicle calculated and reported the fund manager’s carried interest incorrectly by 1.7 percent, or $900,000, on inception-to-date profits of $53 million in the June statement.
In another instance, a US healthcare buyout fund incorrectly withheld $153,341 of cash distribution to pay Illinois state tax, which the pension system was not liable to pay as a tax-exempt investor.
Additionally, a US‐based turnaround fund incorrectly reduced TRS’s unfunded commitment balance by the amount of the cash distribution notice it had issued, and a Nordic region-based fund in the FP International 2016 vehicle incorrectly accounted for and misreported capital contributions made to the fund.
In all cases, the errors were acknowledged by the GP.
An outside vendor would help Oklahoma TRS manage ongoing due diligence, monitoring, operational and reporting aspects of its private markets portfolio. The vendor will verify capital calls and distributions against the LP agreements and subscription documents, review capital account and financial statements every quarter, track and verify management fees and carried interest and monitor investments against GP policy limits, among other tasks, a note for the potential RFP structure said.
Last year, the Oklahoma TRS staff was responsible for managing 111 capital calls and distributions – 18 of which were in private equity, 24 in private credit and 69 in non-core real estate. Complexity would increase as the pension’s private markets portfolio increases in the coming years, the note said.
Oklahoma TRS’s $2.75 billion private markets portfolio is invested in 82 alternative market vehicles, including the 61 private equity funds managed by Franklin Park, within a fund-of-one structure, four private credit funds, three core real estate funds and 14 non-core real estate funds.
The pension system will pay between $200,000 and $500,000, or between $2,500 and $6,000 per fund, depending on the level of service required.
Last year, New Mexico State Investment Council and California State Teachers’ Retirement System hired Colmore to track their fees and expenses to ensure they were not overpaying for their private markets programs.
Earlier, California Public Employees’ Retirement System and Los Angeles County Employees Retirement Association also tapped outside consultants or conducted internal reviews to get a better understanding of the costs of their private market portfolios.