Fee war between private equity firms and pension funds is heating up

Firms like CalPERS grumble over high rates

New York /
Oct.October 26, 2017 09:20 AM
 

The country’s big public pension plans are increasingly unhappy about the high fees fund managers charge them. The question is: do they have any viable alternatives?

“With fundraising so robust, managers could say, ‘Look, you guys are too difficult, I’m not going to put up with that, and I will fill your subscription with somebody else,’” Karen Rode of fund manager of advisory firm Aon Plc told Bloomberg. “Demand is so great, limited partners don’t have negotiating power.”

In recent years, the investment returns from private equity and real estate investment funds have fallen, but fees haven’t. Firms like the Blackstone Group, Apollo Global Management and the Carlyle Group still generally charge management fees of 1.5 to 2 percent and performance fees of 20 percent of profits.

Big pension funds are increasingly grumbling about that. “We don’t own alternative investments. They own us,” Dale Folwell of North Carolina’s public pension system told Bloomberg.

In a bid to appease their biggest clients, some private equity firms allow them to invest directly in deals alongside their funds — a maneuver that avoids fees. “We feel we’d rather partner with our general partners than compete against them,” said Eric Lang of TRS.

CalPERS, meanwhile, is trying to grow its own investment operation. But that requires plenty of staff and expertise and isn’t easy, said Jim Leech, who built up the Ontario Teachers’ Pension Plan Board’s direct investing arm.

“It took Teachers’ more than 16 years to build the machine it has now,” he said. “You don’t do it in 10 months.” [Bloomberg] Konrad Putzier


Related Articles

arrow_forward_ios
With a cooling trade war, stocks perform well, including real estate. (Credit: iStock)
Real estate stocks push up this week as U.S.-China trade tensions ease
Real estate stocks push up this week as U.S.-China trade tensions ease
416 West 25th Street and Maverick Real Estate Partners principal David Aviram (Credit: Google Maps and LinkedIn)
Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case
Chelsea landlord claims “predatory” lender is charging a crippling interest rate as punishment after losing foreclosure case
Sen. Mitt Romney and Sen. Kyrsten Sinema (Getty)
Developers, rejoice: Carried-interest loophole is saved again
Developers, rejoice: Carried-interest loophole is saved again
Stephen Schwarzman, Senator Joe Manchin, and Senate Majority Leader Charles Schumer (Illustration by The Real Deal with Getty Images)
Real estate scores loophole to save loophole
Real estate scores loophole to save loophole
Photo illustration of Carlyle's David Rubenstein and Jason Hart (Illustration by Kevin Rebong for The Real Deal)
Watch: Uncovering Carlyle’s Brooklyn buying spree
Watch: Uncovering Carlyle’s Brooklyn buying spree
Senator Chuck Schumer and Senator Joe Manchin (Illustration by Kevin Cifuentes for The Real Deal with Getty)
Manchin-Schumer deal closes real estate tax loophole
Manchin-Schumer deal closes real estate tax loophole
Photo illustration of Carlyle's David Rubenstein and Jason Hart (Illustration by Kevin Rebong for The Real Deal)
Private equity giant Carlyle’s latest big play: Small Brooklyn buildings
Private equity giant Carlyle’s latest big play: Small Brooklyn buildings
15 Hanover Place in Downtown Brooklyn (Lonicera Partners, Getty)
Lonicera scores $134M loan for DoBro tower
Lonicera scores $134M loan for DoBro tower
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...