State officials press SEC to improve fee transparency

A group of 13 state treasurers and elected city officials are urging the US Securities and Exchange Commission (SEC) to require standardized private equity fee disclosures from GPs, according to a letter sent to SEC Chair Mary Jo White. 

The letter, dated July 21, states that the complexity of private equity cost structures and the lack of industry disclosure best practices has led to “an uneven playing field for state fiduciaries seeking to report private equity fees fully.”

Signatories on the document include: District of Columbia Treasurer Jeffrey Barnette, Wyoming State Treasurer Mark Gordon, New York City Comptroller Scott Stringer, California State Treasurer John Chiang, South Carolina Treasurer Curtis Loftis, Oregon State Treasurer Ted Wheeler, Nebraska State Treasurer Don Stenberg, New York State Comptroller Thomas DiNapoli, Rhode Island General Treasurer Seth Magaziner, Missouri Treasurer Clint Zweifel, Virginia State Treasurer Manju Ganeriwala, Vermont State Treasurer Beth Pearce and North Carolina State Treasurer Janet Cowell.

The letter claims that directly billed management fees are the only “easily segregable” and “regularly disclosed” expenses in the private equity industry. All other fees are only reported “deep in annual financial statements” and not directly to LPs on a quarterly basis, the treasurers say, leading to an “uneven approach to fee disclosure” from GPs to LPs.

The letter highlights portfolio company monitoring fees and the offsets managers typically offer against them, stating that “the calculation behind this offset is often opaque to the limited partner, making consistent disclosure of private equity fees to the public extremely challenging.”

While the treasurers do not specifically say how they want the SEC to address the issue, they say the problems stem from the “absence of a clearly defined standard” and that they are willing to assist the SEC going forward.

The plea from state officials comes at a time when the fee practices have come under heightened scrutiny across the institutional investment community. Last week, City of Milwaukee Employees' Retirement System chief investment officer David Silber published an open letter to GPs, calling for greater fee transparency. Meanwhile, CalPERS recently requested detailed carried interest from all its current GPs as part of an effort to improve tracking and reporting of private equity fees.

In light of the CalPERS controversy, the August issue of pfm, out soon, will explore a new initiative to standardize carried interest reporting – a complex task with mixed opinions.