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Thread: Reporting Investment Manager Fees

  1. #1
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    Reporting Investment Manager Fees

    Recently the Orange County Employees Retirement System staff has been tasked to improve the meaningfulness of budgeted investment fees and to improve the current annual fee report to further identify all management or base fees separately from performance related fees. I am gathering information on both of these topics from other pension systems!

    BUDGETING FOR INVESTMENT FEES:

    Under GAAP, OCERS reports, as an expense on our financial statements, all fees (whether direct or indirect) that are reported directly on the investment manager’s monthly statement. Any other fees that are netted at the fund level and are not specifically identifiable on the statements are netted with the portfolio’s performance. Because we budget in accordance with GAAP, our budget has been impossible to manage as more and more managers are identifying their fees on their statements, causing a larger expense item and less fees being netted with returns. This is great for “transparency”, yet makes it nearly impossible to manage from a budget perspective. I am looking for input from other systems on the following:

    1. Does your system budget for Investment Manager fees?
    2. If yes, do you budget for both direct and indirect fees?
    3. What methodology is used to develop the budget for investment management fees?
    4. Have you encountered the same issues described above with managing the budget for investment fees? If yes, how did you resolve the issue?

    FULL DISCLOSURE REPORTING OF INVESTMENT MANAGER FEES

    We currently provide an annual fee report to our Board and the public that discloses all investment management fees (both direct and indirect) and as mentioned above, we are now being asked to also include a breakdown of fees by base or participation fees vs performance fees. In California there is also new legislation (Government Code 7514.7) that went into effect 1/1/2017 requiring public pension funds to collect information from private equity managers regarding all fees paid to them, both base fees and performance fees included carried interest. The data is required to be collected on a form chosen by the plan. The legislation also requires the plan to prepare and make public an annual report that discloses all of the information collected from the private equity managers.
    5. Has any other state had a similar requirement imposed on them?
    6. For California systems, have any decisions been made by your agency as to the form that will be used to collect the data from the managers (will the ILPA template be used)?
    7. Has anyone developed their annual report that is required by the new legislation (or as required by other governing bodies outside of CA) ? – If yes can you share examples?
    8. Has your system used a 3rd party to assist in analyzing, reporting, auditing and/or reviewing investment manager fees/compensation? If so who did you use and what was the scope of work? Can you share the RFP used to retain them (if applicable)?
    9. Do you have any other information that you think would be helpful on this topic?

    Thank you in advance for your feedback!!

    Brenda Shott
    Assistant CEO, Finance & Internal Operations
    Orange County Employees Retirement System
    2223 E. Wellington Ave, Suite 100
    Santa Ana, CA 92701
    714-558-6201
    bshott@ocers.org

  2. #2
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    Response from CalSTRS:

    1. Does your system budget for Investment Manager fees? Yes
    2. If yes, do you budget for both direct and indirect fees? We budget for everything that is not netted from the returns based on our CIO’s ten year plan and contract estimates prepared by Investment staff.
    3. What methodology is used to develop the budget for investment management fees? See above.
    4. Have you encountered the same issues described above with managing the budget for investment fees? If yes, how did you resolve the issue? We do have to adjust the budget mid-year in certain cases. This does not currently require board approval as it is linked to portfolio increased performance, but it could be a challenge in the future.

    FULL DISCLOSURE REPORTING OF INVESTMENT MANAGER FEES

    We currently provide an annual fee report to our Board and the public that discloses all investment management fees (both direct and indirect) and as mentioned above, we are now being asked to also include a breakdown of fees by base or participation fees vs performance fees. In California there is also new legislation (Government Code 7514.7) that went into effect 1/1/2017 requiring public pension funds to collect information from private equity managers regarding all fees paid to them, both base fees and performance fees included carried interest. The data is required to be collected on a form chosen by the plan. The legislation also requires the plan to prepare and make public an annual report that discloses all of the information collected from the private equity managers.
    5. Has any other state had a similar requirement imposed on them? N/A, in CA
    6. For California systems, have any decisions been made by your agency as to the form that will be used to collect the data from the managers (will the ILPA template be used)? We are working with managers individually.
    7. Has anyone developed their annual report that is required by the new legislation (or as required by other governing bodies outside of CA) ? – If yes can you share examples? In process
    8. Has your system used a 3rd party to assist in analyzing, reporting, auditing and/or reviewing investment manager fees/compensation? See link below. If so who did you use and what was the scope of work? Can you share the RFP used to retain them (if applicable)? Yes See linked item in November 2016 board meeting agendas: http://resources.calstrs.com/publicd...2-8887700ab9b7
    No RFP as was from a previously procured pool of specialty consultants.
    9. Do you have any other information that you think would be helpful on this topic?


    Robin Madsen
    RMadsen@CalSTRS.com

  3. #3
    P2F2 Member
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    Hi Brenda,

    I work for the State of Wisconsin Investment Board (SWIB). We manage the assets of the Wisconsin Retirement System. The majority of our asset management is done internally. We have a large allocation to private equity. I’ve gathered the following responses to your questions (see green font below.)

    Good luck with your project!


    Heather Dobson
    Senior Advanced Financial Accountant

    121 E. Wilson St., Madison WI 53703
    P.O. Box 7842, Madison WI 53707
    (p) 608.267.2863
    heather.dobson@swib.state.wi.us
    www.swib.state.wi.us


    1. Does your system budget for Investment Manager fees? Yes
    2. If yes, do you budget for both direct and indirect fees? We were not sure what is meant by direct vs indirect fees. We budget for both base and performance fees.
    3. What methodology is used to develop the budget for investment management fees? We do a bottoms up projection starting with current AUM, additional asset allocation (if any), redemption and performance expectations and rate fees.
    4. Have you encountered the same issues described above with managing the budget for investment fees? If yes, how did you resolve the issue? No, we haven’t had this issue

    FULL DISCLOSURE REPORTING OF INVESTMENT MANAGER FEES

    We currently provide an annual fee report to our Board and the public that discloses all investment management fees (both direct and indirect) and as mentioned above, we are now being asked to also include a breakdown of fees by base or participation fees vs performance fees. In California there is also new legislation (Government Code 7514.7) that went into effect 1/1/2017 requiring public pension funds to collect information from private equity managers regarding all fees paid to them, both base fees and performance fees included carried interest. The data is required to be collected on a form chosen by the plan. The legislation also requires the plan to prepare and make public an annual report that discloses all of the information collected from the private equity managers.
    5. Has any other state had a similar requirement imposed on them? No, we are not subject to this reporting requirement. We do report all expenses by “vendor” to the legislature quarterly. This report includes those management fees that have been recorded in our accounting system (some performance fees are recorded net and therefore not captured. See “Accounting for Performance Fees” attached). We record all base management fees gross of waivers/offsets.
    6. For California systems, have any decisions been made by your agency as to the form that will be used to collect the data from the managers (will the ILPA template be used)? N/A
    7. Has anyone developed their annual report that is required by the new legislation (or as required by other governing bodies outside of CA) ? – If yes can you share examples? No
    8. Has your system used a 3rd party to assist in analyzing, reporting, auditing and/or reviewing investment manager fees/compensation? If so who did you use and what was the scope of work? Can you share the RFP used to retain them (if applicable)? Yes, we recently completed an RFP for a variety of private markets work, include fee analysis and recalculation. We are still in the contract negotiation stage and can’t release the firm name at this point.
    9. Do you have any other information that you think would be helpful on this topic? Copy of RFP attached with the appendix relating to fee recalculation.
    Attached Files Attached Files

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