Oxford CIO Assails PE’s Fees

  • Scathing critique at industry summit
  • Returns no longer justify firms’ charges
  • ’You can’t claim to be exceptional any more’

Private equity burdens investors with unfair and sometimes hidden fees and delivers poor performance in return, the head of Oxford University’s endowment said in London. Speaking at the British Private Equity and Venture Capital Association’s annual summit, Sandra Robertson, chief investment officer of Oxford’s £1.5 billion ($2.42 billion) endowment launched a scathing attack on the industry that claims to deliver superior returns.

“You make it so hard for us to invest and you can’t claim to be exceptional any more,” Robertson told the gathering of private equity executives and other investors.

Investors are burdened with management fees, deal fees and more recently restructuring fees, while they have to be on the look out for additional fees that firms can charge the companies they invest in, Robertson said. In return for those high charges, private equity has delivered an annual return of only 8.5 percent over the last 10 years, compared with an emerging markets equity index tracker fund that has made 13 percent, with a fee of only 0.5 percent, Robertson said.

Private equity firms have traditionally charged a 2 percent annual management fee to handle investors’ capital and take a 20 percent performance fee, a model they share with hedge funds. By investing some of their own money in their buyout funds, partners in private equity firms claim to be aligning their interests with their investors.

That alignment no longer exists and the industry is now at an inflection point, Robertson said. “Entrepreneurs have been replaced by brands and partners by organizations.”

While endowments, pension funds, wealthy individuals and even banks have poured money into private equity funds in recent years, firms had to realize that no investor needed to put a portion of their assets in private equity, she said. “Smart investors will go where they get the best returns.”