NY Pension Chief Criticizes Private Equity Over Jet Expenses and Retail Fund Risks

Monte Tarbox, chief investment officer of the New York City Retirement Systems, said an unnamed private equity firm last week asked Tarbox to cover employee private jet trips. Tarbox argued that ordinary investor fees should cover those costs. Tarbox criticized private equity firms for a steady increase in fund expenses, including private jet use.

Tarbox said such expenses had accumulated over time and undermined Tarbox's confidence that general partners had investors' interests at heart. Tarbox spoke at the FT Future of Asset Management North America conference in Boston. The New York City Retirement Systems is one of the world's largest pension funds, managing $326 billion for workers including the city's teachers, police and firefighters.

Tarbox linked worsening terms to the influx of retail money into private equity. Retail money is beginning to displace large institutional investors, such as pension funds, as private equity firms' key partners. Tarbox said Tarbox was losing confidence that the private equity industry kept institutional investors central to strategic operations. Tarbox also expressed declining confidence in the industry's claims that private equity firms were not simply seeking to gather assets.

Tarbox warned that retail funds carried a liability mismatch because private equity commitments are generally long term, while retail investors often seek access over shorter periods. Tarbox predicted a crisis in the not too distant future. By contrast, institutional investors try to match assets with liabilities and generally make allocations over long periods.

The private equity industry argues that retail investors gain access to a strategy historically reserved for large institutions. The industry says private equity offers diversification and a record of strong returns. Many of the largest private capital firms, including Blackstone and KKR, are seeking growth from wealthy individual investors. Those firms are building large private equity funds targeting individual investors.

Partners Group, a pioneer in managing private equity funds for individual investors, has suffered investor redemptions from flagship retail alternatives funds in recent months. Earlier this month, Partners Group separated a portfolio of poorly performing private equity investments from newer deals with a better outlook. The unexpected separation followed the fund's decision to limit investor redemptions.