The UK’s Financial Conduct Authority has selected a Universities Superannuation Scheme executive as chair of a working group to trial and encourage the adoption of fee reporting templates.
Mel Duffield, a pensions strategy executive at the £63 billion ($83 billion; €72 billion) institution, will oversee the Cost Transparency Initiative, which launched on 7 November to progress recommendations from the FCA’s Institutional Disclosure Working Group in June. These include a dedicated private equity fee reporting template.
Duffield was heavily involved in the design and implementation of USS’s defined contribution section, USS Investment Builder. USS has a 13.6 percent allocation to private equity, representing £8.6 billion of assets, according to data by sister publication Private Equity International.
CTI – which covers around £180 billion of scheme assets – will run a pilot phase to test the templates and supporting materials until January next year, according to its website. The group will help to roll out the templates post-pilot to the asset management and pension industries to encourage transparent and standardized information collecting for institutional investors.
The FCA’s private equity fee template builds upon an template created by the Institutional Limited Partners Association in 2016. The FCA template uses terminology “more familiar” to the local market and follows the level of detail it set for its main account template, which does not apply to private equity, according to IDWG’s June report. Managers will be able to use either template.
“The private equity community, in producing this template in the UK, has gone a very long way to address concerns around the opacity of private equity and offset negative opinions individuals might have about the industry,” the report noted.
One-fifth of US firms intend to implement ILPA’s fee reporting template, according to pfm‘s Fees and Expenses Survey 2018, which surveyed 157 US alternatives fund managers in June and July. Almost one-third (28 percent) intend to use a modified format and 29 percent do not intend to use a template at all.
Some large institutional investors are struggling to integrate private equity with their portfolios due to transparency issues, Elias Korosis, partner at London-based fund of funds Hermes GPE, said during a panel at the British Private Equity and Venture Capital Association’s annual conference last month. A lack of clarity over the underlying risk metrics has left some investors uncertain over which bucket they should allocate from.
“That’s really hurting the asset class,” Korosis said. “There’s a very big gap in what we could be doing as an asset class in helping LPs feel like this is not a pure black box.”