- Project’s costs depend on GP usage of ILPA template
- “Too early to tell” if PE transparency bill affected access to top funds, says Ciranna
- LAFPP expects to pay almost $36 mln in PE fees, expenses in FY 2017-2018
Los Angeles Fire & Police Pensions thinks a new project to better track its private equity program’s fees and expenses won’t cost a penny. Well, at least until it does.
In a June memo, LAFPP staff wrote they don’t expect to require additional funding or personnel to handle the project, which it launched to comply with a new PE transparency law signed by Gov. Jerry Brown last year. A report detailing the fees, expenses and returns of each fund in the $20.2 billion retirement system’s private equity program will be presented to the board by year’s end.
The project’s costs might rise, however, depending on how firms respond to LAFPP’s requests for additional information relating to each investment funds’ costs, LAFPP General Manager Ray Ciranna wrote in an email to Buyouts last week.
The project’s ultimate cost will hinge on how many funds have adopted the International Limited Partners Association’s template for fee-and-expense reporting. ILPA launched its template in early 2016 and it’s since been endorsed by major PE firms like Blackstone Group, Carlyle Group and Silver Lake, along with many of the private equity industry’s largest limited partners.
“For now, we’re going to work with our private equity consultant to gather the information. And if the funds utilize the ILPA template, gathering the information should be easier. If not, we’ll have to assess the need for additional resources,” Ciranna wrote.
LPs have presented different accounts of PE firms’ willingness to adopt the ILPA template. California Public Employees’ Retirement System reported that a majority of the funds in its portfolio were reporting fees and expenses using the template. Meanwhile, less than a third of Iowa Public Employees’ Retirement System’s partnerships had adopted it, a recent investment memo shows.
Asked about ILPA template usage, an Oregon Investment Council spokesman told Buyouts last year: “We’re pleased with the early progress, but not releasing numbers.”
Investors pay huge amounts in the form of management fees and fund expenses to invest in private equity.
LAFPP expects its $1.8 billion PE program to cost almost $34 million in the 2017-2018 fiscal year, a total that includes fund expenses but excludes carried interest, according to Ciranna and public records. To put that in context, PE represents 9 percent of LAFPP’s investment portfolio and almost 36 percent of its projected annual investment expenses.
Several public pensions launched initiatives to better account for their private equity programs’ fees and expenses in recent years, particularly after SECenforcement actions found that some of the industry’s most prominent firms had not properly disclosed certain expenses to their LPs.
In 2016, California State Teachers’ Retirement System approved a proposal to spend up to $1.2 million over three years to get a better handle on what its fund managers had charged. State of Wisconsin Investment Board awarded a $270,000 contract to Ernst & Young for a similar project in 2015.
California’s 2016 private equity transparency law was intended to standardize the practice of PE fee-and-expense reporting for state and local pension systems. Staff at many institutions, including LAFPP, opposed the bill, citing the possibility of high implementation costs and limited access to in-demand funds.
In an email, Ciranna said it’s “still too early to tell” whether the new law has affected LAFPP’s ability to access blue-chip fund managers who are less likely to yield to the pension system’s state-mandated demands for additional transparency and reporting.
Action Item: For more on LAFPP: www.lafpp.com