1. ILPA is scheduled to release a new reporting template in January to ease the process of tracking fees and carry. What sort of feedback have you heard on preliminary versions?
The industry feedback, on the whole, has been very positive. The degree of warmth has varied, obviously. There are some institutions that are passionate about this, in many cases, because they’ve got constituencies pushing for it. Overall, everyone sees the benefit of this and they’re hard-pressed to argue that transparency of standardization is a bad thing. Those who are not excited by it — or don’t see an urgency — are more quiet. But I don’t think we’ve had any strong pushback.
2. Are you concerned with whether LPs will truly move forward with adopting the template?
My hope is that you’ll see something of a snowball effect. As more LPs ask for it, and as more GPs adopt it, it will become over time a standard. I don’t believe it’s going to happen overnight and, as I mentioned earlier, there are legitimate issues around having to get the backroom aligned around a new reporting template.
3. Does the size of the institution matter for that snowball effect?
Yes, probably. Because if you look at the assets under management of our larger LP managers — CalPERS, CalSTRS and organizations like that — they have many more relationships with GPs out there, and their relationships tend to be of larger size. So, if the GPs listen disproportionately to anybody, it’s probably going to be to their larger relationships.
The GPs have been actively involved in this process … We’ve had a very public effort to get GPs to weigh in on the template, to talk about what is best practice today, and what we should aspire to. [GPs also told us about] what’s hard in the template, and what we shouldn’t be doing because it’s harder to do.
4. To what extent have you seen public pension investment committees follow through on tough talk about fees?
I want to give credit where credit is due to the SEC … If you look at SEC activity, they have noticed things going on in this industry that have raised concerns. It helped us accelerate this issue as something that needs to be addressed. I would include state treasurers in that group, as being helpful in accelerating this issue as well.
Our duty is to advocate the best we can on behalf of our members and … in an ideal world, create a level of transparency and behavior that does not require intervention because there’s nothing intervention would add.
5. That’s interesting, because PE firms’ registration as investment advisers under Dodd-Frank seemed to accelerate the push for greater transparency.
The amount of regulation that … a state or federal organization determines necessary is driven by its comfort with whether the industry itself is measuring up to the sorts of standards the community and electorate feel appropriate.
So my point is, the more we can do to keep our house in order and operate to the highest standards … the less [government] bodies will feel a need to pass legislation or regulate.
That [isn’t] to say there will not be any regulation at the state or federal level, but it means, hopefully, that it will lean toward less rather than more.
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Edited for clarity by Sam Sutton
Photo of Peter Freire, CEO of the Institutional Limited Partners Association, courtesy of ILPA