- $178.6 bln pension has done little to track fees, expenses: Department of Financial Services
- NYS Common Retirement Fund requires new commitments use ILPA template: spokesman
- New York’s PE portfolio valued at $13.9 bln
New York State Common Retirement Fund hit back at a state report claiming the pension and its sole trustee, State Comptroller Thomas DiNapoli, did little to track fees and expenses charged by managers of its $13.9 billion private equity portfolio.
The Department of Financial Services report characterized the comptroller’s endorsement of the Institutional Limited Partners Association’s template for reporting PE’s costs as an empty gesture.
The report charged the pension had “not required private equity firms with which it does business to actually use the template for all future reporting, nor has it required disclosures of any prior failings in earlier reporting of fees and expenses,” wrote DFS officials. “It is not clear that [the comptroller] is requiring any new reporting as a result.”
“Rather than taking action, the comptroller, as trustee for one of the largest pension plans, apparently is waiting for guidance from others, who do not have any fiduciary duty to the state pension system and its members and beneficiaries, and are not on any predictable schedule for further discussions, let alone action,” according to the report.
DFS spokesman Richard Loconte told Buyouts that the Department of Financial Services drew its findings from a letter provided by Nancy Groenwegen, the general counsel for the comptroller’s office, which indicated staff only “asked” firms to comply with ILPA’s reporting standard. DFS didn’t follow up with Groenwegen or the comptroller’s office until the day of the report’s Oct. 17 release, he said.
The DFS findings directly contradict State Common Retirement Fund spokesman Matthew Sweeney, who told Buyouts that the state’s $178.6 billion retirement system made the reporting template a requirement for managers of any new fund commitment made after Feb. 1.
“This is a requirement for new commitments. We expect managers not yet in compliance to work with us to bring reporting systems up to the new ILPA standard,” he said in an email. “We are willing, and have, walked away from managers who can not meet this standard.”
According to one of the pension’s general partners, NYS Common Retirement Fund has started including the ILPA template in its side-letter agreements, which outline terms that are specific to individual limited partners, rather than the fund’s other investors.
The ILPA template itemizes fees charged to the fund and underlying portfolio. It also denotes the general partner’s share of the fund’s profits, known as carried interest.
ILPA released its template several months after California Public Employees’ Retirement System officials admitted they hadn’t kept track of the amount of investment profits its fund managers kept as carried interest.
CalPERS board members like State Treasurer John Chiang and JJ Jelincic viewed the pension’s inability to account for carried interest and other, more granular fees as a major concern.
Chiang and DiNapoli were among a group of elected officials who urged the SEC to strengthen and standardize PE reporting in July 2015. Many of those officials went on to endorse the ILPA template when it was released in early 2016. More than 50 LP organizations had backed the template as of Aug. 9.
Private equity firms have been less forthcoming with their endorsements. While large buyout firms including Carlyle Group, Silver Lake and TPG have declared their support, several sources told Buyouts that smaller PE shops struggle to bring their fee and expense reporting in line with what ILPA standards require.
It’s also challenging for older funds to transition to newer reporting standards, sources said. Some of NYS Common Fund’s older general partners still provide fee and expense reports that fall short of ILPA’s standard, Sweeney said.
“Over half of our managers are either using the ILPA template or are working with CRF to use the ILPA template,” Sweeney wrote. “We are working with all our managers to establish systems that meet the ILPA template.”
Action Item: To read the Department of Financial Services report, visit www.dfs.ny.gov/