US - The California Public Employees' Retirement System (CalPERS) has endorsed new principles for private equity relationships that aim to improve the alignment of interests among partners, governance and transparency.
The principles, proposed by the Institutional Limited Partners Association (ILPA), are designed to encourage a stronger alignment of interests between limited and general partners in private equity partnerships.
The global trade group said that management fees should cover the operating expenses of the firm, the general partners' capital commitment to the fund should be substantial and that there should be stronger provisions in order to avoid profit distribution imbalances between general and limited partners.
The principles also aim to bolster governance. ILPA said limited partners should have stronger rights to suspend, terminate or dissolve a fund, and that the fund auditor should be independent. It said that meetings of limited partner advisory committees should be standardised and adhere to best practises.
In terms of transparency, the association said general partners should offer greater detail to investors about fees generated, carried interest profits received and underlying portfolio company performance.
CalPERS chief investment officer Joseph Dear said: "These principles mark the beginning of a new chapter in the private equity industry."
He added: "As our capital commitment to private equity grows, it is important that the nature of our partnerships also evolve to include improved governance rights consistent with the maturing of the asset class."
CalPERS has been at the forefront of demanding more transparency from its alternative investment managers. In March, officials at the scheme said they were asking hedge fund managers to provide more timely disclosures of their investments, and fees based on longer-term performance. (Global Pensions; March 30, 2009)
ILPA has been open to industry comment following the launch of the principles on September 8. The global trade association for limited partners represents 215 members which collectively manage around US$1tn in private equity assets.