Sovereign Wealth Quarterly - Sovereign Wealth Fund Institute

6 Sovereign Wealth Quarterly | October 2013
U.S. Pension Executives Ink
Letters Concerning PE
Alignment Issues
n general, U.S.
I
public pension
funds - more than
sovereign wealth
funds - need
private equity to help reach
their annual target returns. This
give-take relationship manifests
across America, even when
partner alignment issues arise.
What has taken center stage is
when private equity firms take
monitor fees and transaction fees
on failing portfolio companies.
The debt binge left a nasty
hangover for many pre-2007
private equity funds. Side effects
include poor fund performance,
languishing portfolio companies
and unemployed workers.
Emboldened asset owners – some
of the larger U.S. pensions are
under fire from their support
base, public sector unions, in
what seems to be private equity
firms making money from fees
other than turning around actual
portfolio companies.
Take for example, Caesars
Entertainment Corporation,
which TPG Capital LP and Apollo
Global Management LLC took
private with investor money,
mostly public funds. The casino
operator became saddled with
debt affecting the financial health
of the balance sheet. Coupled with
top-line revenue shortfalls due to
losses in gambling revenues, their
investment faltered. While this is
taking place, the two buyout firms
charged Caesars Entertainment a
US$ 200 million transaction fee
on the US$ 30.7 billion buyout
deal in 2008. In addition, the
private equity firms have been
raking in US$ 30 million per
annum in monitoring fees charged
to the casino company. Usually,
when buyout investments do well,
limited partners tend to look the
other way.
What can institutional
investors do
First, they can write letters to
Oregon Public Employees Retirement Fund - History with TPG Capital
Vintage
Year
Fund Name
Capital
Commitment
Total Value
Multiple
(Millions USD)
1994 TPG Partners I 50 3.66x
1997 TPG Partners II 300 1.77x
2000 TPG Partners III 300 2.47x
2003 TPG Partners IV 300 1.9x
2006 TPG Partners V 300 0.97x
2008 TPG Partners VI 750 1.22x
2008 Apollo Investment Fund VII 400 1.76x
Source: OPERF, Date: March 31, 2013
private equity executives telling
how concerned they really are.
This is what Rhode Island General
Treasurer Gina Raimondo did.
Raimondo is tasked with looking
after the Employees’ Retirement
System of Rhode Island. The
public pension system invested
US$ 20 million with TPG Partners
V, the vehicle that invested in
Caesars Entertainment. Gina
Raimondo penned an August 19th
letter to TPG Chief Investment
Officer and Senior Partner,
Jonathan Coslet, entailing that
fund investors and private equity
managers should “sink or swim
together when investments don’t
work out.” The Rhode Island State
Treasurer articulated that TPG
share monitoring fees with its
limited partners. Heading West
to Oregon, State Treasurer Ted
Wheeler sent letters to executives
at Apollo Global Management
LLC and TPG concerning
misalignment in LP interests.
Wheeler, who is ranked #27 on
the Sovereign Wealth Fund
Institute’s Public Investor 100,
is tasked with looking out for
the best interests of Oregon’s
public employee retirees. The
Oregon Public Employees
Retirement Fund has invested
$300 million in TPG Partners
V and $200 million in Apollo
Fund VI, which also invested
in Caesars – Oregon PERS is
a major U.S. private equity
investor. uu