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Naked Capitalism Publishes Ten More Private Equity Limited Partnership Agreements


The Naked Capitalism blog has been given ten private equity limited partnership agreements from “a source authorized to receive them who is not bound by a confidentiality agreement.”

Pension funds sign limited partnership agreements when they do business with private equity firms. Observers are typically very interested in seeing the documents because they are usually kept under lock-and-key, as PE firms claim the documents contain “trade secrets” that would harm business if made public.

The agreements received by Naked Capitalism can be read here.

Here’s an excerpt of the Naked Capitalism post accompanying the release of the documents:


By Yves Smith

There is a vital public interest in having this information in the open. Public pension funds, which are government bodies, are the biggest single group of investors in private equity, representing roughly 25% of total industry assets. Yet private equity limited partnership agreements are the only contracts at the state and local government level that are systematically shielded from public scrutiny, through state legislation or favorable state attorney opinions.

Yet in countries less captured by rampant free market ideology and private equity political donations, a revolt is underway against this secrecy regime. As the Financial Times reported:

Anger has erupted over the practice of asset managers coercing pension funds into signing non-disclosure agreements. Pension schemes argue it is uncompetitive and prevents them from securing the best deals for their members.

The imposition of confidentiality agreements means pension funds are not able to compare how much they are being charged by fund managers, potentially exposing them and their scheme members to unnecessarily high fees.

The practice is of particular concern with respect to public sector pension plans, which are effectively funded by the taxpayer.

David Blake, director of the Pensions Institute at Cass Business School in London, said: “Local authorities are not allowed to compare fee deals, and that is an outrage. It should be made illegal that fund managers demand an investment mandate is confidential.”

How do private equity kingpins justify their extreme demands for confidentiality, their assertion that limited partnership agreements in their entirety are trade secrets? Consider this “we’ll fight them on the beaches” argument from this Monday’s Private Fund Management, that if general partners, meaning the private equity funds, are forced to divulge fees, they’ll eventually have to expose more of the limited partnership agreement. And of course they claim that would do them competitive harm:

It’s impossible to have a debate about public pension plans disclosing their fee payments without first acknowledging why GPs want them kept private in the first place…

In this context, GPs are being portrayed as secretive and heavy-handed. But so far, what hasn’t been addressed properly is why GPs are apparently so keen to prevent fee receipts from entering the public domain in the first place.

Speaking to pfm off the record, no manager has ever told us that they consider management fees a vital trade secret. No one has defended the idea that disclosing them can make or break a firm.

What we are hearing instead is that GPs perceive the fee debate as a proxy battle for disclosing other data that really are sensitive to the firm’s ability to do business, such as the finer points of their investment strategies, key man clauses and the like. All these things are documented in the LPA, and if the LPA can no longer be subjected to non-disclosure, then sooner or later demands will be made to publish other types of fund-specific information also.


The full post can be read here.

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