LP highlights misalignment of interest with GPs

"Why on earth as a rational investor would I allocate blindly to private equity?" asked Robertson. "There is no longer an alignment of interests," she added. "Private equity is not an asset class, it is a structure and legal framework to a range of strategies that investors cannot access elsewhere."

And it is a structure accompanied by an arsenal of obstacles, according to the LP, who manages around £1.5bn of private money with the competitive advantage of a prestigious brand name and a time horizon spanning generations.

"It is a battle to get in: fundraising, the legal documents with pages and pages of legal jargon designed by lawyers only to be interpreted by lawyers, the endless legal extensions. And that's before you've even tried to begin calculating carried interest! And even once you're in the partnership you have to deal with GPs falling out, when they stop talking to each other, the endless legal extensions, the fund extensions and figuring out all the fees," she added. "The GPs are sometimes not charging you, but they're charging the companies: your assets. Why should we take the extra time and resources to access these strategies, when it's much easier to access equities or real assets directly?"

Sandra Robertson of Oxford University Endowment Management, hits out at GPs over fees and performance

Wake-up call
GPs would of course respond with the lure of high returns. But just how high are they? Not high enough to warrant the time and resources dedicated to the investment class, according to the LP: "Last year, if I had simply bought UK Index Gilts I would have made a 20% return, I could have bought and sold them at a moment's notice. If I had bought emerging markets bonds 10 years ago and simply sat on them, I could have made an annualised return of 10% or even bought some European high-yield bonds and I would have had an annualised return of 13.7%.

"The average 10-year return in private equity has been 8.5%, according to EVCA numbers," Robertson suggested. "That's the same return as the FTSE 250 or indeed the FTSE government bond index, and that is during one of the most exceptional credit markets we have ever seen."

The LP ended her insight into the view of an asset allocator with a wake-up call to GPs: "We need proof that the time and resources required to invest in private equity is worthwhile. You need to earn your place in our portfolios," she added.

Elsewhere, opinion of private equity was more favourable. Greg Clarke, the financial secretary to the Treasury, emphasised the government's dedication to ensuring that London becomes the global hub for private equity and venture capital activity: "We are determined that London will continue to have regulation that understands the industry better than other jurisdictions around the world," he said.

The MP highlighted the growing public interest in the industry as an opportunity to reveal the positive effects of the asset class, and its potential for philanthropy: "Your industry doesn't operate in the abstract. Some people have the notion this it is a rarefied activity that floats free of the real economy. It doesn't," he said. "But it brings big responsibilities to connect with the outside world. 'Private' refers to a time when things were not in the public view, but now there is an appetite to connect with your engagements, and that won't go away."

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