Investor Base: Oxford CIO turns up the heat

Delegates at the 2012 BVCA Summit in London probably expected an uneventful industry conference. Instead, they got a scathing criticism of GPs from one of the UK’s leading investors

Limited partners have, in recent years, become increasingly vocal about their desire for better treatment from general partners. But in October, Sandra Robertson, chief investment officer of Oxford University Endowment Management, took that to a whole new level.

At the British Private Equity and Venture Capital Association Summit in London, one of the industry’s highest-profile events, Robertson launched into a blistering attack on the entire private equity model.

“We buy the ship and put a captain in to lead us to our destination, but right now we pay the captain to lead a different lifestyle,” she said. “The costs outweigh the returns. This model is no longer sustainable.”

She pointed out that according to the European Private Equity and Venture Capital Association, the average private equity return over the last ten years has been 8.5 percent – i.e. about the same as that from the FTSE 250 “during one of the most exceptional credit markets we have ever seen”, as she put it. “[So] why should we allocate blindly to private equity?”

Robertson, who manages about £1.5 billion in assets for the University, also railed against the fees charged by GPs. “It is a ridiculous notion that private equity is an asset class; it’s a legal structure,” she said. “The legal documents with pages and pages of legal jargon designed by lawyers, only to be interpreted by lawyers; the little tricks we have to look out for; the fees for visiting LPs… There is no longer an alignment of interest.”

Robertson’s remarks, during a panel entitled ‘The LP Perspective’, understandably came as quite a shock to most of the assembled delegates. She’s not the only major LP to speak out about misalignment of interests lately – Joseph Dear, chief investment officer of the $236 billion California Public Employees’ Retirement System, said during an interview with PEI earlier this year that he would like to see fees reduced and carried interest “adjusted more appropriately”.

But it’s fair to say that few have done it quite so vociferously, or quite so publicly.

Interestingly, the BVCA itself came out firmly on the side of GPs. “It is wrong to say the fees are too high. LPs enter into an agreement that is carefully constructed and everything is clear up front,” said chief executive officer Mark Florman. “And if LPs are not happy, they don’t have to invest.”

But many of those at the event applauded the frankness of Robertson’s view. And it’s increasingly becoming one that’s difficult for GPs to ignore. n