‘Absolute transparency’ needed on private market fees, says BlackRock

BlackRock is seeking to provide “absolute transparency” on private market fees as the UK government pushes through pension schemes to invest funds in unlisted assets, an executive at the world’s largest asset manager has said.

The comments come as Britain is trying to start an investment “big bang” by convincing pensions and other big asset allocators, such as endowments and sovereign wealth funds, to invest in unlisted UK assets.

“The sentiment is that we need absolute transparency and we need to work towards it,” Armit Bhambra, head of UK corporate pensions at BlackRock, said at last week’s Pensions and Lifetime Savings Association conference in Edinburgh.

In the UK, asset managers including BlackRock have been forced in recent years to adopt standardized fee templates to help pension fund clients understand what they are paying.

Private markets are “notoriously opaque,” Richard Butcher, managing director of PTL, a British firm of independent trustees, said at the same event. “How do I know what the true cost of the investment is?”

Private equity managers typically charge a two percent annual management fee and a 20 percent performance fee if a performance target is met. Investors also pay other fees and expenses, such as legal and monitoring costs, that can erode overall returns.

BlackRock said it used UK industry-designed fee templates to provide private market data to clients “who inquired”, but told the Financial Times it was “actively looking for an improved way of disclosing” these fees to investors. UK pension fund investors.

In January 2021, BlackRock appeared on a list of investment firms that failed to properly disclose fees to some pension clients, more than three years after the fund manager worked with the UK regulator to improve industry transparency. .

ClearGlass, the company that compiled the list, said BlackRock had since improved overall cost disclosure but was facing problems with private markets. However, ClearGlass added that there was a broader industry problem providing private market rate data for pension plans that used daily pricing.

In recent months, global regulators have also called for greater transparency in the fees that private equity managers charge investors. The US Securities and Exchange Commission proposed in February that private equity funds should provide standardized quarterly data on fees, expenses and performance.

The top US securities regulator had noted in a January report that it had found examples of private equity firms providing inaccurate or misleading information about their performance and charging excessive fees.

The push for greater fee transparency comes at a time when the global private equity industry is booming. Assets under management in private markets reached an all-time high of $9.8 trillion in June 2021, up from $7.4 trillion* a year earlier, according to a March report from consulting firm McKinsey & Co.

Asset allocators are looking for investments that can provide future returns as the powerful rally in equity and debt markets since early 2020 reverses sharply. At the same time, governments are seeking private investment to finance projects, as fiscal finances have been stretched due to stimulus programs put in place at the height of the coronavirus crisis.

Calpers, the largest US pension plan with $450bn under management, plans in July to increase its allocations to private equity, switch to private debt and reduce its portfolio’s share of public stocks.

Meanwhile, AustralianSuper and Canada’s Caisse de Dépôt et Placement du Québec plan to pump a combined £32bn into the UK and European private markets over the next few years.

*This story has been modified to correct the previous year’s figure.