Monday, June 15, 2015

Public Employees and Retirees May Not Know that Their Retirement Money Is Being Held in Private Equity Funds

“Who comes first, the investors or the person who manages their money? That question is crucial for any investor. But it poses a special challenge for retired firefighters, police officers, teachers and other employees who may not know that their retirement money is being held in private equity funds.

“These are opaque and costly investment vehicles that borrow money to buy companies and sell them, ideally, for a profit. The secrecy under which this $3.5 trillion industry operates has essentially required millions of people whose pensions are invested in these funds to simply trust that they are being treated fairly.

“Yet the funds impose fees under terms that create conflicts of interest between investors and general partners who run private equity firms. A little-known practice involves discounts that the firms obtain from lawyers and auditors but do not always share fully with investors. A dive into regulatory filings over the last month revealed that 12 private equity firms said they had actual conflicts of interest in connection with such discounts, while 29 more described potential conflicts. Altogether, the 41 firms oversee almost $600 billion in client assets, documents show. The disclosures appear in documents the firms filed with the Securities and Exchange Commission as registered investment advisers…”

For the complete article from the New York Times, click here: When Private Equity Firms Give Retirees the Short End by Gretchen Morgenson

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