More on pension fees. Suppose the real estate agent who sold your house wouldn’t tell you how much it sold for?


There is a correlation between the failure of the state to meet its pension obligation and the hidden fees and skimming done by  private equity companies like Apollo Global Management, Apollo, Blackstone, Carlyle, First Reserve and Freeman Spogli.

The failure of the state to meet its pension payment obligations means that our public pensions are hugely underfunded. The state of Illinois has a $110 billion unfunded pension obligation.

Our pensions are funded by mainly three sources: The state pays a share (although it hasn’t). We employees pay a share. And there are the return on TRS and other pension fund investments.

Because of the unfunded portion, there is a tendency to make up the difference through riskier investments. The higher the return, the greater the risk.

So, a greater percentage of our funds are invested in private equity, high-risk, alternative investments.

I can’t seem to find out what percentage of our public pensions are invested in high-risk alternative investments.

Now to the issue of skimming and hidden fees.

As I mentioned in the previous post, CalPERS, the world’s largest pension fund, is reducing the number of private equity managers in an attempt to reduce fees.

But that won’t change the hidden fee arrangement.

Pension and Investments reports:

The lack of information on fees was brought up during an April 13 investment committee meeting. In a video recording of the meeting, Wylie Tollette, chief administrative investment officer, said CalPERS didn’t track private equity performance fees because “profit sharing in the private equity market, in fact the whole private equity industry, (is) embedded in the return.”

“It’s not explicitly discussed or accounted for. We can’t track it today.”

With more than $40 billion in commitments, CalPERS runs one of the largest private equity programs in the world. For the five-year period ended April 30, CalPERS’ private equity holdings earned an annualized 14.4%, making it the pension fund’s best-performing large asset class.

The problem, says board member Mr. Jelincic, is during the asset distribution process, when private equity managers deduct their portion of the carry — the profit split between the manager or general partner and limited partners like CalPERS. The issue arises because there is no information on what deductions were taken and how the ultimate fee charged to CalPERS was determined, he said.

He said that makes it impossible to determine if the manager is keeping too much from the sale of portfolio companies and could potentially result in CalPERS paying higher fees because it is not getting the right payout.

“It’s like selling your house and having them say, “here are your proceeds,’” he said. ”But we’re not saying how much we sold the house for, how much we charged you in commission, how much we charged you in fees.”

Who would agree to such a thing?

8 thoughts on “More on pension fees. Suppose the real estate agent who sold your house wouldn’t tell you how much it sold for?

  1. I would like to know, how the New Jersey Supreme Court could have sided with Chris Christie and freed the state of pension debt. How will this affect us?

  2. Fred,
    Calpers was not getting value for the higher fees, that is why they shed some private equity investments. It also had to do with balancing the types of investments held. If a particular investment does really well it could end up being to big a % of the portfolio so it will get decreased and the $ invested in another class of asset. You sound like the investment game is inherently evil and run by scoundrels, only partly true. Back to my comment about the trustees that hire the managers.

    1. But you don’t or won’t address the issue of risk to return. The underfunding of our pension funds have led to higher risk alternative investments and private equity companies managing them. A dangerous game with hidden – not just higher- fees.

  3. This is why bankers are so “successful.”
    They cheat.
    The game is rigged. If they had to follow the rules, like everyone else, they wouldn’t look so “smart.” And if they ARE so smart, how come S&P 500 index funds, are out-performing them?

  4. Skimming and hidden fees charged for managing public pension funds? Hmm, how did Rauner make a BILLION dollars?

  5. i dont think he rauner is a billionaire I think he is the opposite of the old ri hwho liked to hide their wealth ….Ithink he didnt release his full taxesbecause it might show h was worth a lot less I wont bore you withn the details how Seaz and Picketty used tax returns to uncover the strucgure of the American plantation but they did . I have looked at the compnies in the GTCRportfolio and it does not lookbillionaire I couldbe wrong but I think Bruce is rich but he needs Ulien and Ken ……and as Fred pointed out before we know some of those contributions were illegal …..

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