A 300-strong representative group of limited partners (LPs) has joined major public pensions such as the California Public Employees’ Retirement System (CalPERS) in demanding private equity fee transparency.
The Institutional Limited Partners Association (ILPA) has launched a “fee transparency initiative” in partnership with pension organizations including the DC Retirement Board, South Carolina Retirement System Investment Commission, and Teacher Retirement System of Texas, as well as CalPERS.
“ILPA’s members recognize the need for a streamlined and uniform approach that will yield the information required to effectively steward the capital entrusted to them.”The initiative aims to increase the uniformity of reporting practices in the industry. Its goals include establishing more robust and consistent standards for fee and expense reporting and compliance disclosures among investors, fund managers, and their advisers.
“This effort has taken shape in response to a confluence of factors,” said ILPA’s CEO Peter Freire in a release. “ILPA’s members recognize the need for a streamlined and uniform approach that will yield the information required to effectively steward the capital entrusted to them by retirees, governments, and academic institutions.”
The ILPA initiative will produce guidance relating to reporting and transparency, building on the ILPA’s 2011 reporting guidelines, which detail the essential elements to be included in quarterly financial reporting, capital call notices, and distribution notices.
Its first recommendation will be a reporting template for fees, expenses, and compensation paid to general partners by individual LPs. The first draft of this template is expected to be available for review by ILPA members later this month. The wider industry, including fund managers and advisers, will be invited to comment on the draft beginning mid-October.
The final version is slated for release in early 2016, and will include additional recommendations on third-party compliance reviews and best practices related to fee and expense reporting and disclosures.
“This effort points to a logical and necessary progression for private equity down the path of becoming a more institutionalized asset class,” Freire said. “We are pleased to serve as a platform to marshal our members’ collective resources to promote improved disclosure standards that will help LPs make better informed decisions.”
The initiative follows a summer of increased pressure on private equity firms to fully disclose fees and pay taxes on them. In June, the US Securities and Exchange Commission (SEC) fined KKR $10 million for violating its fiduciary duty by charging clients for its own expenses on failed deals. A month later, a coalition of 13 major state retirement systems sent an open letter to SEC Chair Mary Jo White urging tighter fee disclosure rules for private equity funds.
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