Massachusetts retirement administration officials have taken aim at the practice of limited partners re-upping multiple private equity fund investments without conducting a competitive process before committing capital.
The Massachusetts Public Employee Retirement Administration Commission (PERAC) is against the introduction of a provision in the state pension reform law that would enable the state's pension managers to re-commit capital to funds without issuing a request for proposals from other general partners, PERAC's executive director Joseph Connarton told Private Equity International.
The provision was added to the state's fiscal 2016 budget and would have impacted the state's Pension Reform Act signed into law in 2011. It would apply to funds in which pension managers have invested for the past 10 years. However, Massachusetts Governor Charlie Baker recently vetoed the provision, blocking state retirement systems from committing capital to private equity funds without conducting a proposal process.
“The issue is one of transparency. The fact that a system has invested with one fund does not or should not preclude it from having an open or competitive process for another fund,” Connarton said. PERAC oversees the activities of 105 retirement systems in the Commonwealth of Massachusetts.
Connarton added that “we've seen cases where systems hold a competitive process and they're getting a better fee structure the second time around. The lower the fee, the better performance. This is what we're working towards.”
In a letter from PERAC sent to Governor Baker in July, the state pension system's oversight group said that without the conducting of a competitive process “there would be no performance comparison, no disclosure of fees paid to third parties in connection with the board investment, and no updated due diligence conducted.”