State Treasurer Clint Zweifel says the Missouri State Employees Retirement System (MOSERS) needs a better system for measuring the total cost of fees from private equity investments.
"Private equity can be a valuable asset class for public funds, but as with any instance of handling public money, transparency is essential," Zweifel wrote this week in a letter to MOSERS board members. "The gaps in transparency and consistent fee reporting have made it difficult for investors to determine the true cost of private equity investing without a substantial and burdensome amount of research.
"Additionally, as we've previously stated, it becomes difficult to compare pension fund costs, knowing each fund uses different data for reporting."
Gary Findlay, MOSERS executive director, told the News Tribune he applauds Zweifel's effort.
"Zweifel acknowledged that "MOSERS reports its core costs more completely than many funds,'" Findlay said in his letter.
But, he added, the problem is "there is no uniform standard for reporting private equity fees. From my perspective, it would be a positive thing if the efforts of treasurers shine light on the issue and lead to more thorough and uniform reporting of fees by private equity managers."
As state treasurer, Zweifel is an ex-officio member of the MOSERS board.
He also chairs the Pension and Trust Investment Committee of the National Association of State Treasurers.
In his letter to the MOSERS board, Zweifel noted he and other state treasurers are asking the Securities and Exchange Commission to require general partners improve private equity fee disclosures and implement consistent reporting standards.
"Taxpayers have a right to know the real costs of investing," Zweifel said in a news release.
"Technology and transparency have made the financial marketplace better for consumers. It's time to see these same improvements in private equity investments for our state pension funds."
Findlay said if consumers of services had a better understanding of total fees they should be in a better position to negotiate. "Over the long term I could see more comprehensive fee disclosures resulting in reductions in total fees and thus better net returns," he said
But Findlay doesn't expect any immediate change in "net of fee returns."
Zweifel points to an April 2015 report from Toronto-based CEM Benchmarking Inc. saying, "The time has come for standardized total cost disclosure for private equity."
The report reaches the same conclusion as Findlay and Zweifel: "Understanding true costs can lead to lower costs through negotiation with managers. ... Additionally, understanding costs may lead to more efficient investment vehicle selection because high costs will materially impact (private equity) performance."