New York City Retirement Systems criticizes private equity fee creep as retail push reshapes fundraising

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NYC criticizes private equity fees

Highlights

Monte Tarbox of New York City Retirement Systems highlights increasing private equity fund expenses, including a request to underwrite private jet trips, eroding institutional investor confidence.
Tarbox links worsening private equity terms to growing retail investor inflows, warning of a potential industry crisis due to liability mismatches created by shorter-term retail withdrawals versus long-term commitments.
Major private capital firms like Blackstone and KKR intensify retail fundraising efforts, while Partners Group recently faced redemptions and restructured its flagship retail alternatives fund after limiting withdrawals.

Fee pressures and investor concerns

As reported by the Financial Times, Monte Tarbox, chief investment officer of the New York City Retirement Systems, says an unnamed private equity firm last week asked the pension investor to underwrite the cost of employees' private jet trips, arguing that such spending should instead be covered by standard investor fees.

Tarbox says he sees a steady increase in fund expenses charged by managers, and that the accumulation of such requests undermines his confidence that general partners are acting in investors' best interests. He makes the remarks at the FT Future of Asset Management North America conference in Boston.

The New York City Retirement Systems manages $326 billion on behalf of city workers including teachers, police and firefighters, making it one of the world's largest pension pools. Tarbox links the worsening terms to the growing flow of retail money into private equity, which he says is beginning to displace large institutional investors such as pension funds from their traditional position at the center of managers' strategies.

Retail expansion and sector risk outlook

Tarbox says he is losing confidence in private equity groups' claims that they are not simply focused on gathering assets. He also warns that retail funds carry a liability mismatch because private equity commitments are typically long term while individual investors often seek access to their money over shorter periods, creating what he predicts is a crisis that could emerge in the not too distant future.

By contrast, institutional investors generally seek to align assets with liabilities and make allocations with long time horizons. The private equity industry argues that opening the asset class to retail investors broadens access to a strategy long reserved for large institutions, while also offering diversification and a history of strong returns.

Large private capital firms including Blackstone and KKR are increasingly targeting wealthy individual investors as a source of growth through dedicated private equity products. Partners Group, an early manager of private equity funds for individual investors, has in recent months faced redemptions from its flagship retail alternatives funds, and earlier this month split weaker-performing private equity holdings from newer deals with a better outlook after the fund began limiting investor withdrawals.

In our earlier article on EQT’s acquisition of U.S. real estate manager Stockbridge, we explained how major private capital firms are pursuing platform-building deals as fundraising becomes tougher and asset sales slow. We also outlined how weaker exit conditions are accelerating industry consolidation, pushing managers to broaden strategies and scale up to stay competitive.

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