Biss05302017Private equity firms would have to disclose the currently secret investment fees they charge to Illinois’ public pension funds under legislation sponsored by Senator Daniel Biss (D-Evanston) that was approved in the Senate Monday, May 29.

These sometimes lucrative fees charged by private equity firms and hedge fund managers are exempt from disclosure to taxpayers under Illinois sunshine laws. Even the boards that oversee the pension funds are kept in the dark about some fees.

Biss maintains that this kind of secrecy flies in the face of a steadily growing national and global movement toward more transparency.

“This is not a time for Illinois taxpayers to be paying fees they don’t know about,” he said. “If you’re concerned about the asset levels in the pension funds, you should be concerned about the fees you’re paying. That is the only expenditure that is secret from you right now.”

Senate Bill 779 would attempts to increase the state’s pension funds’ investment transparency by requiring that:

  • pension systems disclose agreements with alternative investment funds and certain provisions of those agreements;
  • alternative investment fund managers and general partners disclose certain investment fees paid directly or indirectly to the alternative investment fund;
  • if an investment fund utilizes the Institutional Limited Partners Association template, the fund will be in compliance with the disclosure requirements; and
  • disclosures would be published on the systems’ websites and subject to FOIA.

The provisions of Senate Bill 779 would apply to every large retirement system or pension fund regulated by the Illinois Pension Code, as well as the Illinois State Board of Investment. The disclosure requirements would apply to new agreements proposed or executed after Jan. 1, 2018.

The Teachers Retirement System, the largest system in Illinois, currently has nearly $8.5 billion invested and committed to the private equity asset class.

According to a 2015 ranking by Institutional Investor’s Alpha magazine, the country’s 25 top-earning hedge fund managers raked in an estimated $11.6 billion in 2014. The previous year, the top 25 collectively earned nearly double that, estimated to be more than $21 billion.

Comparatively, the aggregate pay for all of the kindergarten teachers in the nation in 2014 was an estimated $8.5 billion.

“Common sense says that if we have that greater level of transparency, we’ll pay lower fees and have better returns,” Biss said. “We should know the fees we pay, and that knowledge will allow us to negotiate better deals on our pension funds. That’s a winning formula for taxpayers.”

Senate Bill 779 now will go to the House for consideration.

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