BlackRock is seeking to provide “absolute transparency” on private market fees as the UK government pushes pension plans to plough funds into unlisted assets, an executive at the world’s biggest asset manager said.
The comments come as Britain is seeking to ignite an investment “big bang” by convincing pensions and other large asset allocators like endowments and sovereign wealth funds to invest in unlisted UK assets.
“The sentiment is that we need absolute transparency and we need to work towards that,” said Armit Bhambra, head of corporate pensions UK at BlackRock at last week’s Pensions and Lifetime Savings Association conference in Edinburgh.
In the UK, asset managers, including BlackRock, have in recent years been pushed to adopt standardised fee templates, to help pension fund clients understand what they are paying.
Private markets are “notoriously opaque,” said Richard Butcher, managing director of PTL, a UK firm of independent trustees, at the same event. “How do I know what the true cost of investment is?”
Private equity managers generally charge a two per cent annual management fee and a 20 per cent performance fee if a return goal is met. Investors also pay other fees and expenses — such as legal and monitoring costs — that can erode overall returns.
BlackRock said it used the UK industry-designed fee templates to provide private markets data to clients “who asked”, but told the Financial Times it was “actively pursuing an improved way of disclosing” these fees to UK pension fund investors.
In January 2021, BlackRock appeared on a list of investment companies failing to disclose fees adequately to some pension clients, more than three years after the fund manager worked with the UK regulator to improve transparency for the sector.
ClearGlass, the firm which compiled the list, said BlackRock had since improved on the general disclosure of costs but faced issues with private markets. However, ClearGlass added there was a wider industry problem with providing private market fee data for pension plans that used daily pricing.
Global regulators have in recent months also called for greater transparency on fees private capital managers charge to investors. The US Securities and Exchange Commission in February proposed that private equity funds should provide standardised quarterly data on fees, expenses and performance.
The top US securities regulator had pointed out in a January report that it had found examples of private equity companies providing inaccurate or misleading information about their performance and overcharging fees.
The push for greater fee transparency comes as the global private capital industry is booming. Assets under management across private markets hit an all-time high of $9.8tn as of June 2021, up from $7.4bn a year earlier, according to a report in March by consultancy McKinsey & Co.
Asset allocators are seeking investments that can provide returns well into the future as the powerful rally in equity and debt markets since early 2020 pulls sharply into reverse. At the same time, governments are looking for private investment to fund projects as fiscal finances have become stretched because of stimulus programmes put in place at the height of the coronavirus crisis.
Calpers, the biggest US pension scheme with $450bn under management, plans in July to boost its allocations to private equity, shift into private debt and reduce the share of its portfolio in public stocks.
Meanwhile, AustralianSuper and Canada’s Caisse de dépôt et placement du Québec are planning to inject £32bn combined into private markets in the UK and Europe in coming years.