UK To Debate Ban on Secret Pension Fees


The UK government will consider a ban on secret pension fees in light of a proposition from Lord Mike German to improve the transparency of pension investments.

More from the Financial Times:

The UK government is to debate a ban on non-disclosure agreements that conceal fees between pension funds and asset managers, in a bid to provide individuals with more information about how their pensions are managed.

A proposed amendment to the Pension Schemes Bill put forward by Lord Mike German, former leader of the Welsh Liberal Democrats, would put an end to pension schemes signing non-disclosure agreements with fund companies over fees.

Lord German’s proposal, which has the backing of investor rights charity ShareAction, would also require pension funds to inform savers on request about how they voted at company meetings on issues such as executive pay, and explain how they select and monitor fund managers.

Lord German said: “The purpose of this amendment is to try and establish whether the government is prepared to give people the rights that they need. [Savers] are not disinterested in their pensions.”


Lord German’s amendment was submitted to parliament in mid-December and will need approval from DWP ministers, the Treasury and the Department for Business, Innovation and Skills. If the amendment is adopted it could enter law by the end of March, according to Lord German.

Currently, pension schemes are only required to disclose information about investment policy and performance in annual reports. ShareAction said that in practice “savers are often sent information that is technical [and] inaccessible”.

Asset managers have already voiced their displeasure with the proposition. BlackRock told the Financial Times: it is “neither in the interest of institutional investors nor of investment managers to ban non-disclosure agreements”.

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.

Some Private Equity Firms Want More Opacity In Dealings With Pension Funds

two silhouetted men shaking hands in front of an American flag

Private equity firms are growing uncomfortable with the amount of information disclosed by pension funds about their private equity investments.

PE firms are cautioning their peers to make sure non-disclosure agreements are in place to prevent the public release of information that firms don’t want to be made public.

Stephen Hoey, chief financial and compliance officer at KPS Capital Partners, said this, according to COO Connect:

“We had correspondence with a municipal pension fund relating to the Limited Partner’s inquiry regarding the SEC’s findings from our presence exam. We objected to our correspondence with the LP of matters not relating to investment performance including notes taken by the LP representatives being submitted to reporters under the Freedom of Information Act (FOIA). It is our communications with LPs other than discussions about performance metrics that we object to being in the public domain.”

Pamela Hendrickson, chief operating officer at The Riverside Company, said PE firms should know exactly what pension funds are allowed disclose to journalists. From COO Connect:

“GPs should make sure their LP agreements and side letters are clear about what can be disclosed under a Freedom of information request. GPs must comply with any non-disclosure agreements they have with their portfolio companies and information provided under the Freedom of Information Act should be restricted to ensure that the GPs remain in compliance,” said Hendrickson.

It’s already very difficult for journalists to obtain details and data regarding the private equity investments made by pension funds.

But PE firms are worried that the SEC will crack down on fees and conflicts of interest:

The SEC has recently been questioning private equity managers about their deals and fees dating all the way back to 2007. There is speculation the US regulator could clamp down on private equity fees following its announcement back in 2013 that it would be reviewing the fees and expenses’ policies at hedge funds amid concerns that travel and entertainment costs, which should be borne by the 2% management fee, were in fact being charged to end investors.

“The SEC is taking a strong interest in fees, and this has become apparent in regulatory audits as they are heavily scrutinising the fees and expenses that we charge. Following the Bowden speech, we received a material number of calls from our Limited Partners whereby we explained our fee structure and how costs were expensed accordingly. We also pointed out that our allocation of expenses was in conformity with the LP agreements, which is the contract between the General Partner and a fund’s limited partners,” said Hoey.

COO Connect, a publication catering to investment managers, encourages PE firms to use non-disclosure agreements to prevent the public release of any information the firms want to remain confidential.


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