A group of public finance managers led by Rhode Island General Treasurer Seth Magaziner wants the Securities and Exchange Commission to require private equity firms to reveal more about fees and expenses related to their management of public pension plans.
The group oversees a combined $1 trillion in public assets.
"We have a broad coalition of cities and states, and large and small funds," Magaziner said in an interview Thursday. "We're a relatively small state with an $8 billion, so we're just a drop in the ocean on Wall Street. To make some noise, we had to recruit some of the largest states."
Scott Stringer and Thomas DiNapoli, the respective comptrollers of New York City and New York State, are on board. So is California State Treasurer John Chiang.
They say those costs are often hidden in complicated reporting systems.
"It's time to take the detective work out of how private equity managers report their fees," said Stringer.
"Billing practices are cryptic at best and many partnership statements are so vague they could be considered purposefully opaque," he said.
The initiative comes amid heightened nationwide scrutiny of the funding and management of public pension plans, and of the fees Wall Street firms charge. The Private Equity Growth Capital Council estimates U.S. public pension funds invest 9.4% of their portfolios in private equity on a dollar-weighted basis.
"Given the funding challenges facing so many public pension plans, strong returns continue to make private equity investments an attractive option for public pension systems," the letter said. "However, when compared [with] public asset classes, the cost structures of private equity are complicated."
The group crosses party lines, according to Magaziner, a Democrat.
"It's Republican and Democrat," he said. "South Carolina Treasurer Curtis Loftis and I are totally opposite on most issues but on this one we couldn't be any closer."
Finding fee information is "very difficult," he added.
"If we want to know how much a firm charges for its management fee, incentive fee, as well as legal and auditing, we have to back out all of that ourselves. It's as though you had a meal in a restaurant and the waiter tells you they took the meal out of your paycheck and you have to figure it. We have to do the math ourselves. It's crazy."
Magaziner, in his first year as treasurer after predecessor Gina Raimondo won the race for governor last fall, referenced the need for stronger national standards when he unveiled his
His transparency push includes a new investment information center and data portal on the state Treasury website, publication of a request-for-proposals calendar and the appointment of a chief transparency officer, Kerri Baker.
