Measuring 'Value for Money' in Private Markets Investing

“Partnership agreements outlining private equity firms’ practices are as closely guarded as the recipe for Coca-Cola….”

GRETCHEN MORGENSON - NEW YORK TIMES, MAY 4, 2015

A Wakeup Call for Pension Funds

Gretchen Morgenson’s recent New York Times article, Hidden Fees Take a Big Bite out of Pension Savings, continues to reverberate throughout the global pension investment industry. The article effectively accuses many pension funds of channeling complex concoctions of fees into various forms of private markets investment schemes without being fully aware of the total costs being incurred.

This is a fiduciary ‘no-no’. A fundamental duty of pension fund Boards is to ensure that all fund expenditures pass a reasonable ‘value for money’ test. Stating the obvious, if the total amount of money being spent to produce value for beneficiaries in private markets investing is not known, conducting a reasonable ‘value for money’ test becomes an impossibility. Arguably, such a situation constitutes a breach of fiduciary duty.