The chief investment officer overseeing New York City’s $326 billion pension system has publicly criticized the growing list of expenses private equity firms are passing on to their investors, including one case where a firm reportedly sought to charge limited partners for employees’ private jet travel.
Monte Tarbox, chief investment officer of the New York City Retirement Systems, said the jet expense should have been covered by the management fees investors already pay, calling it emblematic of a broader trend of general partners shifting costs onto limited partners.
Speaking at the FT Future of Asset Management North America conference in Boston, Tarbox questioned whether private equity managers continue to prioritize the interests of their institutional investors as fee structures and expense practices have drifted in the industry’s favor.
Tarbox connected the shifting terms to private equity firms' increasing courtship of retail and wealthy individual investors, arguing that as large alternative asset managers look beyond pensions and other institutional clients for fundraising growth, the incentives shaping fund terms are changing.
He also raised concerns about liquidity mismatches in retail-oriented private equity funds, warning that individual investors may expect to redeem their holdings on shorter timelines than the long-term, illiquid nature of private equity investments typically allows.
Tarbox predicted that mismatch between retail investor expectations and private equity's inherently long-dated structure could eventually trigger a crisis in the industry, adding institutional weight to growing scrutiny of the asset class's push toward individual investors.
