Oxford Endowment Chief Attacks Private Equity

Private equity fees are too high and returns too low, the head of Oxford University's endowment has said.

(October 19, 2012) -- Private equity charges inordinate fees and provides lackluster returns, according to Oxford University’s most senior investment officer.

“Private equity is like the old trading ships - investors would put up cash and the captain would put their lives at risk to find and protect good investments. But private equity doesn’t live like ship captains anymore,” Sandra Robertson, Oxford's endowment head, said during the Private Equity & Venture Capital Association conference in London.

She added: "You make it so hard for us to invest and you can't claim to be exceptional any more."

Amid all the fees of the asset class, private equity has only delivered an annual return of 8.5% over the last decade. In comparison, an emerging markets equity index tracker fund  has made 13%, with a fee of only 0.5%, Roberston said.

According to Oxford's investing head, who manages £1.4 billion ($2.42 billion) for the university's endowment, along with its colleges and charitable trusts, private equity has failed to deliver the results they have promised. She warned investors that if the industry wanted to continue to raise money, it would eventually need to prove itself by cutting "undeserved fees". Robertson continued: “There is no longer an alignment of interests. We will no longer just pay in capital to sail on the ship, we want the capital to do something. For funds that have a clear demonstrable, competitive advantage, where there is a specific focus on a region or a sector, then it will be business as usual. You will probably have the luxury of choosing your investors.”

Despite the dire description and future outlook of private equity, endowments, pension funds, and a host of other types of investors have flocked to the asset class. An August survey from data provider Preqin even showed that most (71%) of institutional investors are satisfied with returns on private equity investments, and 99% expect returns will beat public markets. “[We] have had our ups and downs with private equity, but on the whole and over the longer term, [private equity returns] have met expectations,” said one US public pension fund respondent. 

Nevertheless, many investors note that the high cost of fees continues to detract from the allure of the sector. As a result, one academic study has shown that institutional investors are increasingly eschewing intermediaries in favor of direct investments in private equity.

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