Private Equity Agreements With Pension Funds Lack Transparency

Pension funds are major clients of private equity firms.  In order to do business with private equity firms the pension fund managers agree to keep the terms of their agreements secret.  The private equity firms defend the secrecy clause in their agreements by arguing that disclosure would reveal proprietary information that could be used by their competitors.  Pension fund managers comply with the secrecy clause when requests for information are made.  This article is critical of many of the common terms in these agreements that expose investors to excess risk, and protect the interests of the general partners. Apparently, pension fund managers are willing to accept those risks in order to participate in the funds which provided a superior return for the decade beginning in 2004.  They have have not performed better than low cost index funds in the last five years.  In any case, this article provides many insights into how the agreements favor the interests of the general partners over the investors in their funds.