Pension funds join private equity’s critics(3)

The UK-based National Association of Pension Funds wants the Treasury to encourage greater transparency and disclosure about the fees that its members pay to private equity fund managers.

The National Association of Pension Funds, the body that represents the UK’s £800 billion (€1.2 trillion, $1.6 trillion) pension scheme industry, is considering a campaign to cut the fees that its members pay to invest in private equity, in what will be seen as a further setback for the embattled UK private equity industry.

An NAPF spokesperson said: “We believe there should be transparency and disclosure of fees in the interest of investors and we are uncertain whether this is available.”

The proposals may form part of the NAPF’s submission to an ongoing Treasury review of the private equity industry, which began in March. The body also plans to respond in detail following Sir David Walker’s appearance in front of the Treasury Select Committee next Tuesday, according to the spokesperson. Walker is leading the BVCA-sponsored working party that is looking at how the industry can become more transparent.

The private equity industry has always maintained that it provides full disclosure to investors, if not to the wider world. UK regulator the Financial Services Authority concurred with this judgement earlier this month, saying it had been satisfied the industry provided sufficient information to investors despite its previous concerns.

There has also been speculation that the body is seeking a reduction in fees the body as saying that pension funds also want to bring down their fees. The spokesperson said “Fees from private equity firms are higher than many asset classes, although we will publish our decision about this in response to the review’s findings,”

The NAPF could seek a cut in the management fees that pension funds pay to private equity managers, which can be up to 2 percent of the committed capital. The typical carried interest level of 20 percent, which is paid as a performance fee, could also come under scrutiny.

Although UK pension funds have a smaller proportion of their assets allocated to private equity than their counterparts in the US, the average is thought to be about 3 percent of the total –which equates to tens of billions of pounds for private equity firms.

The move comes amid increasing controversy over the impact of leveraged buyouts on company pension schemes. Trade unions have underlined the risks to retirement benefits posed by leveraged financial structures, while others have argued that pension fund trustees should have more of a voice in takeover discussions.