Iowa sees pushback on adoption of ILPA template for PE fees, expenses

Less than a third of the private equity funds in Iowa Public Employees’ Retirement System’s portfolio report fees and expenses using the Institutional Limited Partners Association’s standardized template, documents obtained by Buyouts show.

Just 31 percent of the fund managers in the $3.5 billion portfolio use the template, Pathway Capital Management reported in a June presentation to Iowa’s board.

Pathway’s tally marks an improvement from when preliminary versions of the template began circulating in mid-to-late 2015. At the time, 21 percent of Iowa’s active funds had agreed to adhere to ILPA’s standards, according to the Pathway report.

ILPA, which counts prominent PE investors like California Public Employees’ Retirement System among its 400-plus members, officially unveiled the template in early 2016.

About average adoption rate

“At 31 percent adoption rate of the entire active portfolio, Iowa is probably around the average mark for our public funds,” said Emily Mendel, ILPA’s head of marketing and communications. “We don’t track these percentages formally, but there are definitely LPs who have higher adoption rates, and ones that have lower adoption rates. It depends on what they have mandated — and what their mix is.”

Mendel also noted that LPs with large allocations to smaller and midsize buyout and venture capital funds would likely have lower adoption rates. General partners who’ve endorsed the ILPA template, including Carlyle Group and Kohlberg Kravis Roberts, tend to be more active at the larger end of the market.

Iowa’s PE portfolio included 276 active commitments, and roughly 20 percent of the portfolio’s market value is in large or megabuyout assets, state investment records show.

Notably, LPs are less likely to ask older funds to change the way they report fees and expenses, Mendel said. In some cases, such a request could involve amending limited-partnership contracts, TorreyCove Capital Partners President and CEO David Fann said at the Pension Bridge conference in Chicago this week.

Several fund managers in Iowa’s portfolio said they would use the template on future funds, Iowa CIO Karl Koch told Buyouts. But some PE fund managers have pushed back on implementing the template.

“The managers have provided various reasons for not completing the requested template, including that their accounting systems are not designed to track the specific data requested in the template, and that some or all of the requested information is already provided within the existing financial statements they provide limited partners,” Koch said.

Pathway, through Koch, indicated it was unaware of any situation in which Iowa’s request to report fees and expenses using the template affected its ability to invest in a PE fund.

Standardizing cost reporting

ILPA created the template in 2015 to standardize how general partners report the myriad costs associated with managing and operating a PE fund, as well as its underlying portfolio companies. Many public pensions, most notably CalPERS and California State Teachers’ Retirement System, attracted the ire of transparency activists and politicians for failing to keep track of some of the costs associated with their investments.

Iowa was an early backer of the template. The retirement system instructed Pathway, which manages its $3.5 billion private equity portfolio, to ask fund managers to report their fees and expenses using the template “or some similar reporting format” when it negotiates Iowa’s commitments to new investment funds, Koch said.

Several sources have told Buyouts that a growing number of PE firms have begun to adopt the ILPA template in their reporting of fees and expenses. Several major U.S. public pensions, including New York City’s five retirement systems, require the template on new commitments.

Action Item: More on the ILPA template: https://ilpa.org/

Iowa Gov. Kim Reynolds and Canadian Prime Minister Justin Trudeau meet at the National Governors Association summer meeting in Providence, Rhode Island, on July 14, 2017. Photo courtesy Reuters/Brian Snyder