Dutch Pension Fund Escalates War Against Private Equity Secrecy, Won’t Invest in Funds that Fail to Disclose All Fees and Costs

The Wall Street Journal broke a story that is guaranteed to rock the private equity industry. The giant Dutch pension fund PGGM, which manages over $200 billion in the form of the retirement assets of social workers and nurses, has said it will stop investing in private equity funds that refuse to make full disclosure of all fees and costs.

Despite being less than a household name in the US, PGGM is a large and influential private equity investor. Moreover, private equity standard-setter CEM Benchmaking not only singled out South Carolina for being far ahead of other US pension funds in its vigilance in identifying fees and costs, but also pointed out the other countries, such as the Netherlands, Denmark, and Switzerland, were mandating full disclosure. From an April CEM report:

In the Netherlands, the Federation of Dutch Pension Funds introduced new reporting standards in 2012 requiring Dutch pension funds to show full investment costs. These standards have been adopted by the Dutch central bank, De Nederlandsche Bank (DNB), with the expectation that all Dutch pension funds will comply with their 2014 financial statements. Specifically for PE, full investment costs include full management fees, performance fees, consulting fees, monitoring fees and transaction costs.

PGGM isn’t simply responding to these new requirements. It’s putting the entire private equity fee-gouging regime in its crosshairs, and demanding that fees bear a reasonable relationship to costs. Europeans, who don’t hold financial buccaneers in high esteem, do not regard private equity multi-million dollar pay packages as reasonable costs that they should have to support. As the Wall Street Journal reports:

“The interests of our beneficiaries and the interests of the asset management industry are not always aligned,” Ruulke Bagijn, PGGM’s chief investment officer for private markets, said in an interview. “We are on the side of pension funds and we no longer want to turn a blind eye on difficult subjects like fees and compensation.”…

PGGM will gradually introduce its new rules and will stop investing in funds that don’t disclose all fees by 2020, according to the document. It will also stop investing in funds whose fees are deemed to be “considerably higher than costs.” PGGM expects remuneration to be based mainly on the performance of managers’ funds, and it is monitoring how much of each manager’s own money is invested in their funds.

“Writing what we find acceptable and what we don’t find acceptable is new,” Ms. Bagijn said.

Mirabile dictu! A private equity investor that is not afraid to act like a normal important customer would, meaning haggle over costs when they look out of line.

PGGM is not happy about the disproportionately, as in unjustifiably high, cost of investing in private equity:

Most of the money that PGGM manages is on behalf of the PFZW pension fund. More than half of PFZW’s €811 million fee bill in 2014 went to private equity. Yet private equity only accounts for 5.6% of PFZW’s €162 billion of assets.

And PGGM is at the forefront of disintermediating high cost “alternative” investment managers:

To reduce its fee bill, PGGM stopped investing in infrastructure funds and started investing directly in infrastructure assets a few years ago. As a result, annual infrastructure fees have declined from more than 2% of assets to less than 1% and PGGM expects them to decline further. PFZW paid €36 million in infrastructure fees in 2014 and had €4.3 billion in the asset class last year.

In private equity, the pension fund has started to invest directly in takeovers, such as the €3.7 billion purchase of car leasing company LeasePlan Corporation NV in July. It is also backing the creation of new private-equity firms in exchange for better terms on fees. Last year, PGGM supported the spinout of Nordian Capital Partners, formerly the private equity unit of Rabobank. The fund is also committing larger amounts to some managers to gain more favorable terms.

“We are able to make progress because we are going more direct,” Ms. Bagijn said. “That is already resulting in lower costs for our clients and further cost reduction will be substantial going forward.”

As we’ve pointed out, private equity returns have been flagging despite the one-two benefits of the boost to risky assets and the considerable reduction in borrowing costs provided by QE and ZIRP. Private equity’s failure to shine under such favorable conditions shows that there are way too many funds chasing too few deals, and that the rich fees, only about 1/3 of which are performance based, are indeed eating into returns over time.

Moreover, PGGM’s willingness to take on the industry frontally shows how craven US public pension funds, particularly mega-PE investors like CalPERS and CalSTRS, are. The Sacramento behemoths seem willing to do their job as fiduciaries at best selectively. When caught out as captured by private equity, they press the industry only when the media piles on (and in the case of CalSTRS, not even then).

The tide is beginning to turn on private equity. It’s time for US public pension funds to recognize that if they don’t start playing the role of the sophisticated investors that they claim to be, their legitimacy will be questioned even more than that of their seeming private equity lords and masters.

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  1. BudinPA

    “PGGM will gradually introduce its new rules and will stop investing in funds that don’t disclose all fees by 2020.”

    Wow. I’m impressed with the speed of their commitment. Ha

    1. diptherio

      Well, they may well already be in contracts until then, so it might be the best they can do. But you’re right, this does seem to be mighty little and mighty late. How about trying to claw back some of those fees from the GPs? Now that would really be impressive (and hella’ fun to watch).

  2. Clive

    What is it about Private Equity which seems to induce almost bizarre levels of clandestine secrecy in both the industry itself (understandable maybe – if you’re running a scam then you don’t give away the details) but also investors? When former oil industry executive Justin Welby was ordained as the Archbishop of Canterbury he took on a mantle of moral crusading against the ills of big business in general and made specific references to bad actors in big finance.

    So, you’d have thought that the Church of England would not hesitate in living up to not casting the first stone by coming clean on any sins of its own. Putting this to the test, I made the following general equiry to the Church, which by its own documentation has moved a chunk of its own investment portfolio (which is huge) into PE:

    From: Clive
    To: Jillian Moody
    Subject: C of E Private Equity Investment

    Dear Communications Office Team

    You may not be aware of some pioneering and informative work which the “Naked Capitalism” blog, under the editorship of Yves Smith, has conducted into the Private Equity industry http://www.nakedcapitalism.com/category/private-equity. I occasionally write for this blog and have become aware that the Church of England is a significant investor in Private Equity https://www.churchofengland.org/about-us/structure/churchcommissioners/assets/stock-market-investments.aspx.

    I would be very grateful if you could help me with research into the Private Equity industry I am currently undertaking both as a parishioner and also with a view to writing a feature in the Naked Capitalism blog. Specifically, your assistance in responding to the questions below would be much appreciated.

    • Is the Church aware (as in, able to request the level of from the Private Equity funds themselves) what the carry fees on the funds in which it has invested are? Please note that we do not seek to know, let alone make public, what the fees are as we appreciate these may be commercially sensitive but we would like confirmation that the Church is able to obtains the fee levels and thus be able to satisfy itself the fee schedule is reasonable.
    • Can the Church provide a figure (either in monetary value or as a percentage of each fund) how much money the Private Equity General Partners are taking directly out of the portfolio companies which are owned by the funds invested in by the Church? Those payments go directly from the company (or companies) owned by the fund to the general partner or one of its affiliates, and do not flow though the Limited Partnership. The size of the deductions made by the General Partners are additional to, and not counted in, the usual “2 and 20” (2% annual management fee and a 20% participation in profits fees) which are standard in the Private Equity industry.
    • Could the Church provide us with some or, preferably, all the Private Equity Limited Partnership Agreements it has entered into with Private Equity funds?

    Yours sincerely
    (Clive) (Address)

    For which I received this polite but, erm, evasive reply:

    From: Claire Barraclough email-***-churchofengland.org

    Hi Clive,
    Hope you are well. Unfortunately we are not able to disclose the level of detail you require. All of our public financial information and holdings are communicated in our annual report. Here is the link. https://www.churchofengland.org/about-us/structure/churchcommissioners/annual-reports.aspx


    (Clive again) Now, I’ll leave readers to decide if I was asking for anything unreasonable or doing so with any obfuscation about why I was enquiring and what I was intending to do with the information. But it strikes me that there is no valid reason for such a prevarication. I’ll take another tack with my next request – if anything interesting emerges I’ll be surprised but I am nothing if not an optimist.

    1. zapster

      Well, except that “we haven’t got a clue” might prove somewhat alarming to the denizens of the parish..

  3. Mucho

    As a dutchie, this makes for some cautiously hopeful reading. Interestingly, the connection between private equity and pension funds embezzlement was also examined critically in two recent documentary episodes released about a month ago (following up on a similar-themed documentary from 2013). It made quite some waves in the press, on social media and in my social circle, especially among people around my parents’ age (near retirement). Lot’s of reputational damage, it seems.

    ( Link to the documentary (in dutch): http://www.omroepmax.nl/zwartezwanen/ )

  4. flora

    Good news.
    One hopes US pension fund managers read this article and wake up.
    Thanks for staying on the PE case.

  5. diptherio

    IMHO, the problem does not start or stop at the PE industry. The root of the problem is greed, pure and simple. Greed on the part of the PE GPs, sure, but also a much more generalized greed that seems to have taken over our entire society.

    Everybody wants something for nothing; everybody wants to “put their money to work” for them; everybody wishes for their little pile of cash to turn into a bigger pile of cash without them having to do anything for it. It’s the American dream: not just to get something for nothing, but to get as much as possible for nothing. PE works because they promise to provide more easy money than other con-men…er, investment professionals. They play on greed, pure and simple.

    If it weren’t for the greed of everyone in our society seeking something for nothing, PE wouldn’t have any clients. As it is, no one seems to have a problem with over-riding greed–and they are willing to overlook large amounts of chicanery so long as they think it is serving their greed. As every con-artist knows, greedy people are the easiest to take advantage of–maybe that’s why we’ve had the “greed is good” mantra crammed down our throats since the ’80s (at least).

    1. Fool

      No. The root of “the problem” — whatever it is that you’re identifying specifically, which wasn’t clear to me — is not “greed, pure and simple.” Greed is human nature. To simply conflate this term with the PE industry’s price-gouging, among other mischief, is reductive of its many actual (and identified) flaws. Indeed, of course “everybody wants something for nothing” — the statement is practically a tautology — as nothing is the lowest possible cost of something!

      The PE industry is the primary problem — or at least the most essential signifier thereof. (See today’s link to Adam Levitin’s article on Credit Slips, referring to the PE model as “heads I win, tails bankruptcy.”)

  6. Larry

    I’m interested to see South Carolina held up as an example of an investor demanding more of private equity. That raised bells because I thought I had read a story not long ago how their principle manager was overpaid and was perhaps a little too buddy-buddy with the funds in which he invested. Now, perhaps that has all changed with the new State Treassurer Loftis being involved. I found this 2013 article about power struggles over the $26 billion fund:


    If that’s the case, then it does seem that the enhanced attention on the workings of these funds as pointed out by Yves, David Sirota, and others is having a substantial effect on behavior.

    1. Yves Smith Post author

      Please see the link in the post:


      CEM very clearly states that South Carolina is miles ahead of any of the other funds they benchmark in terms of getting fee and cost information. And that is due to Loftis. Our approving comments on South Carolina were only about its insistence on getting as much information about its real costs as it can. And yes, Loftis has had to fight tooth and nail.

      1. Larry

        I did see the linked post, but was simply surprised that South Carolina has made such a turn-around in fidicuary duty to it’s future pensioners. And I meant that surprise to be applause for your efforts Yves, and the likes of other reporters (not many) who are covering the pension beat. It seems to be making a real difference in how the public money of retirees is being managed.

  7. RUKidding

    Private equity’s failure to shine under such favorable conditions shows that there are way too many funds chasing too few deals, and that the rich fees, only about 1/3 of which are performance based, are indeed eating into returns over time.

    Salient point and a huge consideration for how one invests and in what.

    Thanks for this information about the Dutch pension fund, PGGM, and their response to PE fees, etc. Keep us posted on any other news in this regard or updates from PGGM.

    CalPERS & CalSTRS: hope you are reading this and learning what steps YOU should take next (with my money).

  8. Oregoncharles

    ” Netherlands, Denmark, and the Netherlands” – looks like a significant typo. Is there a 3rd country – Norway, perhaps? They’re a wealthy oil state, so important.

    1. Yves Smith Post author

      Aiee, no, the Norway sovereign wealth fund does not invest in pension funds. Will check the source doc and fix. I thought I had copied and pasted but clearly I stuffed something up!

  9. John kissinger

    Lots of complaints about fees, some hidden, but I have yet seen a comparison of net returns, say since 2000, compared to say s&p500 and long term bonfire funds.
    Where can such comparisons be found?
    Imo, if net private looks good vs the others, it makes sense to continue regardless of fees.

  10. TheCatSaid

    What about the tax loophole Yves has discussed in relation to PE, in which carry fees “disappear” by using a US tax loophole that reduces the fund’s profits? (Look ma, low fees!)

    Is this issue relevant to foreign investors such as PGGM, to get a clear idea of all their actual fees and costs?

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