The private equity trade group helped produce research indicating their industry does not need to be transparent regarding fees paid by public pensions, many funded by teachers or firefighters. The Committee on Capital Markets Regulation published the paper.
Committee members are mostly from Wall Street with a business professor or two scattered in the mix. One professor is the Russel L.Carson Professor of Finance. Carson founded Welsh, Carson, Anderson and Stowe, a private equity underwriter (PEU). PEU representatives on the committee come from Blackstone and Apollo.
I get the sense that this is not an impartial review given the PEU lobby provided research support and committee members include PEU executives.
The report paints an egalitarian world in several of its findings:
....finds that the concentration in the U.S. private equity fund market is very low, far lower than that of industries in public markets and registered funds, and that the number of private equity fund advisers and funds is steadily growing. Both are signs of a highly competitive market and one that is growing increasingly competitive.
....finds that the Proposed Rule will reduce competition in the U.S. private equity fund market in several respects. Most importantly, the Proposed Rule risks reducing returns for private equity fund investors and reducing the variety of investment strategies available to investors. The Proposed Rule will also increase barriers to entry to the U.S. private equity fund market with a particularly negative impact on women and minority-led private equity fund advisers.
The report makes it sound like there are few barriers to entry into private equity and that any requirement to publish fees and allowable costs will drive away legions of women and minorities clamoring to open their own PEU shop.
A March 2023 McKinsey report on private markets noted:
Amid a pullback in commitments, an outsized share of capital flowed to the largest funds, as investors re-upped with their existing managers but reduced backing smaller and new funds. Funds over $5 billion collected a record $445 billion in aggregate, a 51 percent increase over funds of a similar size in 2021. Conversely, dollars raised by sub–$5 billion funds decreased by 28 percent. Just 2,141 funds were closed during the year, 1,600 fewer than in 2021 and the fewest of any year since 2013. First-time fund launches also decreased by 40 percent.
That massive shift of business to the majors and contraction for smaller players occurred without a SEC rule requiring the disclosure of price and allowable cost information.
Coke has its secret formula, KFC has its secret recipe and the PEU boys have their secret fees, nonstandard return formulas and preferred taxation.
Enough Americans have worked for a PEU affiliate to have a bad after taste. It doesn't go away after a Dunkin Donut or Baskin-Robbins ice cream cone.
Can the SEC rise above the PEU air occupying our hallowed halls of government? My guess is no, given PEU preferred "carried interest" taxation is still around despite widespread public opposition. Preserving carried interest is the second bullet under AIC "top priorities" (middle image in this piece).
If huge pensions can't get access to this most basic pricing information what chance will you have when the SEC opens up your IRA or 401k to private equity investments? Zero. The small investor will pay the magically derived, yet never clearly spelled out PEU fee.
Update: Carlyle Group co-founder David Rubenstein was referred to in a story as "one of the most plugged-in high financiers." PEUs win, teachers and firefighters lose. That's the benefit of being plugged in, also known as "insidership" according to Larry Summers.
