Treasurer David Lillard

TENNESSEE Treasurer David Lillard did not join a coalition of some of his state and city peers, when in a letter July 21 they petitioned the Securities & Exchange Commission to "require general partners to make better disclosure of private equity expenses to limited partners."

The treasurer was apparently concerned there might not yet have been sufficient communication with stakeholder groups that hold views pro or con regarding new regulatory action on the matter.

Responding to a VNC query on the issue, spokeswoman Shelli King said, "Treasurer Lillard did not sign the letter because he believes more substantive work needs to be done on how best to approach the field of increasing fee disclosure and transparency in private equity transactions before addressing the SEC. For example, there may be a need to convene among the stakeholder limited partner organizations a focused conversation to develop a statement of "Best Practices" in regard to transparency and fee disclosure. A conversation with stakeholders for general partners will also need to be conducted."

In its letter, the coalition called for continued dialogue and stated its readiness to assist the SEC in considering the transparency issue. Their letter is here.

Declaring itself a "bipartisan" group of representatives of 13 pension funds that oversee approximately $1TN in pension-fund assets, the coalition said that vagaries in GPs' reporting of fees have led to discrepancies and uncertainties.

The coalition's press release said, in part, that the group is asking the "SEC to require the clear and consistent disclosure of fees and expenses which are often hidden in complicated, and even opaque, reporting systems."

SEC Chair White

In its letter to SEC Chair Mary Jo White, the coalition said, in part, "Broadly, this opacity has also led to a culture in which management fees reported by state pension funds often do not reflect total management fees accrued by private equity firms. In the absence of a clearly defined standard, states that voluntarily disclose more omprehensive accounts of total fees and expenses are put at a disadvantage in state-to-state comparisons. We believe increased disclosure transparency will provide limited partners with a stronger negotiating position, ultimately resulting in more efficient investment options. We have a fiduciary obligation to achieve these goals, and therefore assert that greater private equity fee disclosure standards are in the public interest."

The SEC's website makes clear the agency has sought to establish a stronger compliance presence within the private-equity sector for at least three years., prompted partly by Dodd Frank and by the enormous ramping of aggregate PE portfolio value. In May, an SEC speaker said some PE fund managers "still seem to take the position that if investors have not yet discovered and objected to their expense allocation methodology, then it must be legitimate and consistent with their fiduciary duty." That speaker warned that 2016 may see an uptick in PE enforcement actions.

Asked whether Treasurer Lillard shares the concerns of the coalition members, King responded via email, "Fees, performance and access are all significant concerns in managing private equity portfolios and the Treasurer is concerned about all of these areas."

Among other duties, the Treasurer's staff manage the investments of the Tennessee Consolidated Retirement System (TCRS), which at June 30, 2014, totaled $42.9 billion at fair market value, with FY14 investment income of $6.16 billion. Michael Brakebill has served since early 2008 as TCRS chief investment officer; and, Daniel Crews is director of private equity. TCRS's investment in private equity was authorized legislation in 2008. Other TCRS coverage here.

King also pointed-out that Treasurer Lillard and his staff "seek to address TCRS's interests at the national level" via such industry groups as the National Association of State Treasurers (NAST), of which Lillard is current president, with his term ending in January 2016; and, the Institutional Limited Partnership Association (ILPA).

According to the Treasurer's website, he is also a member of the executive committee of the National Association of State Auditors, Comptrollers and Treasurers (NASACT). That group's website shows him as chairman of that group's financial management and intergovernmental affairs committee. Lillard holds an LL.M. in Taxation from the University of Florida, as well as Law and undergraduate degrees from the University of Memphis.

Signatories shown on the coalition's July 21 letter included representatives of California, the District of Columbia, Missouri, Montana, Nebraska, New York City, New York State, North Carolina, Oregon, Rhode Island, South Carolina, Vermont, Virginia and Wyoming.

This story will be updated, as warranted. VNC