ILPA weighs in on fee transparency debate

The recent media frenzy around whether or not GPs should allow their fee structures to be disclosed in the public domain through Freedom of Information Act requests has prompted speculation around what stance the LP community takes on the issue. Executive director at the Institutional Limited Partners Association (ILPA) Kathy Jeramaz-Larson shared her thoughts with pfm.

In recent articles in publications such as The New York Times and The Wall Street Journal, the principal argument has been that pensioners – firefighters, police officers, teachers – deserve to know how their retirement dollars are being used; and therefore should know how much public pension money is going into the GP’s pocket in terms of fees and expenses. However, it appears as though the pensions themselves are not heavily concerned about sharing that level of fund detail to the public.

“Their job is to maximize returns to the pension. That’s the bottom line,” said Jeramaz-Larson. “If there is some sort of competitive advantage that their GP has, the LP does not want that out there in the public domain.”

As long as LPs are making the returns they have promised, pensioners should be content with the fund information that is currently available in the public domain, she added.

Furthermore, fee information on its own might be easily misconstrued because the public would not be privy to the negotiations that took place in order to bring those fees about.

“Every LP might have a different focus and or have a different fee structure in order to maintain their objectives,” explained Jeramaz-Larson. “You really have to read the entire contract to understand, and even then, if you weren’t a part of those conversations you might not understand how they came to the fee structure.”

The real issue at hand, she said, is whether or not LPs themselves are getting enough information about fee allocation from their GPs. Earlier this year, top US Securities and Exchange Commission inspector Drew Bowden raised the issue at the PEI Private Fund Compliance Forum in New York.

From its discussions with investors, ILPA has heard of an increase in that transparency since the introduction of its private equity best practice principles in 2009, said Jeramaz-Larson.

“The board of trustees and the CIOs at these pensions are looking for more transparency. I would err on the side of saying that transparency is there between the GP and the LP,” she added. “The fact that the media isn’t getting access to something that they asked for is neither here nor there.”

For more coverage on the fee transparency debate, see the December issue of pfm.