Penn SERS to boost fee transparency

The Pennsylvania State Employees’ Retirement System (Penn SERS) is to update its reporting protocol to better illustrate the impact of fees on fund performance following auditor recommendations.

Reports should include both net and gross fee returns to show how expenses affect investment returns, Pennsylvania auditor general Eugene DePasquale said in a report published this week.

“Additionally, comparing the gross and net [figures] by manager could indicate how aggressively SERS was able to negotiate fees,” the report stated.

DePasquale recommended that SERS make the fee reporting process more transparent, including reporting all investment expenses and fees for management, performance, fund expenses and portfolio company charges in its annual financial reports and on its website; mandating all investment managers to “distinctly identify and report all investment fees and expenses incurred by SERS,” and by considering using internal investment managers where possible for certain asset classes to “lessen the multi-million dollar fees to external managers.”

The recommendations are in line with those issued to other US pension schemes. In June, New Jersey proposed a fee and carry disclosure law, requiring the New Jersey State Investment Council to report its external fund managers’ fee and carried interest data on its website, and to the boards of trustees of each state-administered retirement system in the state.

Secondaries funds that Penn SERS is invested in include Ardian Secondary Fund VII, to which it made a $100 million commitment. At the start of August, the fund committed $50 million to Asia Alternative Capital Partners V, which can invest up to 30 percent in secondaries and direct co-investments.

Penn SERS has a private equity allocation of 15.7 percent, and $26.3 billion of total assets under management. It has trimmed its allocation to private equity from 22.4 percent in 2013, a 6.7 percent decrease.