- "The biggest U.S. pension fund isn’t happy," write Sonali Basak and David Carey at Bloomberg. “I don’t see your industry standing up and justifying fees," said one CalPERS director to fund managers at a summer meeting.
- CalPERS, according to its CIO, is exploring the idea of cutting out P-E firms, and buying businesses on its own. Not a good idea, warns Carlyle's (NASDAQ:CG) Sandra Horbach, saying the relative novices at pension funds would be going head-to-head with savvy P-E players like herself.
- The P-E industry has a point. Yes, fees are high, but net returns are what's important, and at CalPERS, average net returns in the last 20 years of P-E investments are 11% - the best of any asset class the fund invests in, and 400 basis points better than the rest of the portfolio.
- At issue is more recent performance - results have turned lamer, but the "2 and 20" fee arrangement remains (maybe "1.5 and 20" in some cases).
- At Blackstone (NYSE:BX) in 2016, management-fee revenue per professional averaged $1.35M - nearly four times operating costs, excluding compensation. And incentive fees boosted that average by $1.2M. "Your profit margin is my opportunity," says Jeff Bezos. Is that sort of disruption coming soon to the P-E industry?
- Related: KKR, OAK, ARES, APO
- ETFs: PSP, PEX
- Now read: KKR 2017 Q3 - Results - Earnings Call Slides
Original article