Oxford CIO blasts industry returns, 'legal jargon'

“We buy the ship and put a captain in to lead us to our destination, but right now we pay the captain to lead a different lifestyle… The returns outweigh the cost. This model is no longer sustainable.”

That was the message Sandra Robertson, chief investment officer of Oxford University Endowment Management, gave to delegates at the BVCA summit in London on Thursday. She painted a grim picture of the relationship between GPs and LPs.

“The legal documents with pages of pages of legal jargon designed by lawyers, only to be interpreted by lawyers, the little tricks we have to look out for, the fees for visiting LPs,” she said. “There is no longer an alignment of interest.

“The average 10-year return in private equity has been 8.5 percent according to EVCA numbers. That’s the same return as the FTSE250, during one of the most exceptional credit markets we have ever seen. So why should we allocate blindly to private equity?“ she asked. “Some firms are still generating acceptable returns, but overall it’s disappointing,” she added.

“It is a ridiculous notion that private equity is an asset class. It’s a legal structure,” she said, adding that private equity firms need to “earn their place in our portfolio”.

For many delegates, Robertson's speech was a topic of discussion during the breakout. “It’s good to hear a frank view”, Clive Rowland, chief executive of UMI3 The University of Manchester Innovation Group, said. “It’s very hard to make money when more fees are taken out of the fund. It reduces the number of deals you can do”, he said. “I am sure she’s not suggesting a no-win-no-fee situation, but moving towards a more cash-success structure. Her message is to reduce the cost and increase success, moving into a new direction as we are living in a new reality.”

However, Mark Florman, chief executive officer of the BVCA, defended the level of management fees. “It is wrong to say the fees are too high. LPs enter into an agreement that is carefully constructed and everything is clear up front,” he said. The management fees are used for the day to day running of the firm, he added. “The salary of GPs is not particularly high. It’s lower than [the salary of] an investment banker. And if LPs are not happy, they don’t have to invest.”