Look Who’s Coming to Private Equity’s Defense on Fee Secrecy

Private equity managers can’t be trusted, and state and city pension officials, with $420 billion invested in the asset class, know it. The U.S. Securities and Exchange Commission told them so two years ago, when it reported that the majority of buyout fund managers were cheating investors with excessive and undisclosed fees. Since then the agency has repeatedly settled with funds it has accused of defrauding investors, including a $30 million settlement with KKR in June 2015; another for $39 million with Blackstone in October; and one for $52.7 million with Apollo Global Management on Aug. 23. (The firms didn’t admit wrongdoing.)

Legislators in at least seven states have responded this year by introducing bills that would force the private equity industry to disclose more about how it operates. But those efforts now look likely to fall short, in part because of pushback from an unlikely source: the same public pension funds they were drafted to protect. In a handful of states, including New Jersey and Alabama, bills have already died. In Kentucky, a bill passed the Senate but failed in the House. Washington passed a bill in March that even enshrined the right of pension funds to keep details of their private equity investments secret. That leaves legislation actively in play in only two states: California, where a watered-down bill went to the governor on Aug. 24 for his possible signature, and Illinois, where a measure faces serious opposition.