US public pension funds should improve transparency by increasing their disclosure of alternative investment costs and fees, specifically private equity, The Pew Charitable Trust stated in a recently released report.
“Because many alternative investments involve greater risk and complexity, boosting transparency is essential,” the study stated.
Pew recommends that public pension plans adopt comprehensive fee-reporting standards, such as the Institutional Limited Partners Association (ILPA) fee template; make investment policy statements transparent and accessible; disclose bottom-line performance, both net and gross of fees; expand reporting to include longer-term performance results; and report results by asset class, net and gross of fees.
Pew collected data on asset allocation, performance and fees from the 73 largest state-sponsored pension funds for the study, which collectively manage $2.9 trillion in assets.
The research revealed that the South Carolina Retirement System and the Missouri State Employees’ Retirement System are particularly thorough when it comes to collecting and disclosing fee information.
Of the 73 plans examined, only 59 provide access to their investment policies online, while others indicated that their policies are available upon request.
More than one-third of the plans examined do not disclose detailed returns net of fees, which Pew describes as “needed to fully understand investment performance.”
The report calls for expanding performance reporting to include 20-year results by investment type in order to “supply stakeholders with information that is better aligned with fund investment strategies.” Currently most funds report only 10-year investment performance, and only 13 of those researched provide 20-year figures.
Pew is the latest to join the dialogue surrounding private equity fee transparency, which gained steam with the release of the ILPA template in late January. Last month, a bill was proposed in California state legislature that would require GPs to provide detailed fee information to state pensions, and would also require pensions to disclose that information to the public.