Key Takeaways
- • Monte Tarbox, chief investment officer of the New York City Retirement Systems, which manages $326 billion, says rising private equity fund expenses, including a request that an unnamed firm's employee private jet trips be underwritten by the pension, are eroding institutional confidence.
- • Tarbox warns that growing retail inflows into private equity create a liability mismatch between long-term commitments and shorter-term individual withdrawal expectations, which he predicts could become a crisis.
- • Blackstone and KKR are intensifying retail fundraising, while Partners Group has faced redemptions from its flagship retail alternatives fund and restructured it after limiting withdrawals.
Summary
Monte Tarbox, chief investment officer of the New York City Retirement Systems, has criticized rising fund expenses charged by private equity managers, according to the Financial Times, which reported his remarks at the FT Future of Asset Management North America conference in Boston. Tarbox said an unnamed private equity firm recently asked the pension investor to underwrite the cost of employees' private jet trips, arguing that such spending should be covered by standard investor fees. He said he sees a steady increase in fund expenses and that the accumulation of such requests undermines his confidence that general partners are acting in investors' best interests.
The New York City Retirement Systems manages $326 billion on behalf of city workers including teachers, police and firefighters, making it one of the world's largest pension pools. Tarbox linked the deteriorating terms to the growing flow of retail money into private equity, which he said is beginning to displace large institutional investors such as pension funds from their traditional central position in managers' strategies. He said he is losing confidence in private equity groups' claims that they are not simply focused on gathering assets.
Tarbox also warned that retail vehicles carry a liability mismatch, since private equity commitments are typically long term while individual investors often seek access to their money over shorter periods. He predicted this could produce a crisis in the not too distant future. Institutional investors generally seek to align assets with liabilities and make allocations with long time horizons. The private equity industry counters that opening the asset class to retail investors broadens access to a strategy long reserved for large institutions, while offering diversification and a history of strong returns.
Large managers including Blackstone and KKR are increasingly targeting wealthy individuals through dedicated private equity products. Partners Group, an early manager of private equity funds for individual investors, has faced redemptions from its flagship retail alternatives funds in recent months. After the fund began limiting investor withdrawals, it split weaker-performing private equity holdings from newer deals with better outlooks earlier this month.
The New York City Retirement Systems manages $326 billion on behalf of city workers including teachers, police and firefighters, making it one of the world's largest pension pools. Tarbox linked the deteriorating terms to the growing flow of retail money into private equity, which he said is beginning to displace large institutional investors such as pension funds from their traditional central position in managers' strategies. He said he is losing confidence in private equity groups' claims that they are not simply focused on gathering assets.
Tarbox also warned that retail vehicles carry a liability mismatch, since private equity commitments are typically long term while individual investors often seek access to their money over shorter periods. He predicted this could produce a crisis in the not too distant future. Institutional investors generally seek to align assets with liabilities and make allocations with long time horizons. The private equity industry counters that opening the asset class to retail investors broadens access to a strategy long reserved for large institutions, while offering diversification and a history of strong returns.
Large managers including Blackstone and KKR are increasingly targeting wealthy individuals through dedicated private equity products. Partners Group, an early manager of private equity funds for individual investors, has faced redemptions from its flagship retail alternatives funds in recent months. After the fund began limiting investor withdrawals, it split weaker-performing private equity holdings from newer deals with better outlooks earlier this month.
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