As regulators in the US comb over the private funds industry in search of bogus fees and expenses, fund managers in Australia are beginning to undergo a similar type of scrutiny.
Australia is mapping out the future direction of its financial system under a blueprint known as the Financial System Inquiry (FSI). The government report examines fees paid by Australia’s compulsory superannuation (or pension) system and specifically calls out private equity and venture capital management fees as relatively expensive. GPs are not always transparent about how these fees (including monitoring and transaction fees charged to portfolio companies) are structured, the FSI said.
The Australian Private Equity & Venture Capital Association Limited (AVCAL) is already pushing back against the FSI’s conclusions, saying it focuses too much on fees and not returns net of fees; the subtext being performance in the sector outstrips other investment strategies to an extent that the fees are justified.
AVCAL figures suggest that Australian private equity outperformed public market the S&P/ASX 300 Index by 185 basis points per annum over the fifteen years ending 2013 on a net-of-fee basis.
“Australia is perhaps the only developed market in the world that is still trapped in this policy and regulatory debate about fees and costs – other economies are focused on net returns,” said in a letter to the FSI AVCAL’s chief executive, Yasser El-Ansary, who added that private equity and venture capital fund managers, as well as their investors, indicate few, if any, concerns relating to a need for more fee transparency.