- PE eats up 45 pct of pension’s investment costs
- Total costs fall below median 18 LP peer group
- PE allocation falls from 12.8 pct to 10.7 pct over five years
Those costs did not take into account performance fees, typically expressed as carried interest, or any costs related to private equity transactions, according to the report.
Private equity fees charged by external managers accounted for roughly 45 percent of the $54.6 million of costs Montana accrued from external and internal portfolio management services last year. The total includes management and performance fees charged by investment managers as well as consulting and auditing costs.
CEM Benchmarking uses its database to track the investment portfolios of 140 U.S. pension funds, in addition to more than 100 international funds. In its August 18 report to Montana, the consulting firm found Board of Investments’ costs fell below the median of its peer group, which includes 18 U.S. public sponsors with between $4.2 billion and $17.8 billion of assets.
Overall, the annual costs of Montana’s investment portfolio equaled 0.566 percent of its $10 billion investment portfolio, well below the 67.2 basis point median of its peer group, according to the report.
Montana’s costs fell in the previous half decade as its private equity allocation dropped from 12.8 percent in 2010 to 10.7 percent by the end of 2014, according to CEM Benchmarking. Private equity historically ranks among the most expensive asset classes, with GPs typically charging investors a management fee equal to 1.5 to 2 percent of commitments, in addition to taking 20 percent of the fund’s profits as carried interest.
In other news, Montana re-upped $20 million to a new Neuberger Berman co-investment fund, according to an investment disclosure included in its meeting materials.
The Board of Investments previously committed $20 million to Neuberger Berman’s last strategic co-investment fund, a 2012 vintage vehicle that netted a 1.42x multiple and 34.74 percent IRR since inception, according to state documents.
The Montana Board of Investments has a target allocation range of 9 percent to 15 percent for private equity, according to meeting documents. Its allocation stood at 10.7 percent as of June 30.