Pension funds are more than happy to spend a few basis points to learn a little about their hedge funds, private equity funds

Hedge fund and private equity managers are complaining to anyone who will listen (mostly Republican senators) that Gary Gensler’s plans to shed additional light on the opacities of their art more or less portend the end of the civilization. Rules that would require more uniform disclosures and subject funds to regular Securities and Exchange Commission audits, along with other annoying planned demands like “keep your conflicts of interest in check” and “stop charging investors court costs for your own frauds”, and perhaps also stop outright lying to your clients, are “unnecessary”. “Paternalistic”. Likely to “stifle entrepreneurship [and] flexibility… which make private funds an increasingly attractive option. “Unfair.” They complained so much that Gensler agreed to give them an extra month to work out their spleen.

By far the most common criticism is that all these new bookkeeping requirements will cost money, money that cannot fund the pensions of the cops, firefighters, nurses and teachers whose pensions depend on alternative investments to optimize their returns. The new rules “will not boost pension returns,” warns American Investment Council President Drew Maloney. The same group adds that the rules will not only stifle entrepreneurship and flexibility, but also “returns on investment”. The Managed Fund Association says they “will only harm the most sophisticated investors”.

What the most sophisticated investors say: “It suits us”.

University endowments, insurance funds and pension funds serving teachers and firefighters are urging the Securities and Exchange Commission to move forward with a proposed rule that would ensure private equity investors receive annual audits and quarterly statements…. [Ohio Public Employees Retirement System Executive Director Karen Carraher] said it would reduce the need for investors to painstakingly negotiate basic private fund disclosures and help them more easily spot self-serving behavior by private fund managers.

The chief investment officer of a major US pension plan told the Wall Street Journal that it took its accounting staff about six months to extract and standardize information from reports from private fund managers to compare and track costs. .

And that’s just the information they’re able to get from their managers. Because it turns out the Republicans are a little optimistic about suggesting that these big, powerful, sophisticated investors with their half trillion dollars of allocation power can just demand whatever data they want from the funds, which will be obviously powerless to refuse.

“A frequent refrain that the [New York State Common Retirement Fund] receives in response to its request for improved fund terms that would benefit all investors is: ‘respectfully declined’,” the fund’s chief investment officer wrote in a comment letter to the SEC…. “That’s what you hear from investors, ‘We’re nervous about losing our allocation, so we don’t want to be the squeaky wheel,'” said law school professor William Clayton. from Brigham Young University who conducted the survey. at a conference in October and made the data public in a comment letter.

Stripped of these bad faith (and equally false) arguments, at least one industry champion is saying the quiet part out loud.

“It doesn’t seem particularly unfair to me that the people who have had the best performance are those who are able to negotiate terms that are to their advantage,” [Ropes & Gray’s Jeremiah] Williams, who is also a former member of the SEC Division of Law Enforcement Asset Management Unit, said in an interview.

Pension funds call for more disclosure rules for private equity and hedge funds [WSJ]

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