Private Equity Managers Charging Fees on Committed, Uninvested Capital: A Closer Look by Edward Siedle

Private Equity Managers Charging Fees on Uninvested Capital: A Closer Look at the Controversial Practice

In the world of money management, it’s not uncommon for managers to charge fees on money that is merely committed to a venture, even if they are not actively managing it. This practice, which involves charging fees on uninvested capital, has come under scrutiny in recent years for its questionable ethics and impact on investors.

According to a recent report by Edward “Ted” Siedle, a renowned financial investigator, private equity managers are charging fees on committed, uninvested capital because investors, including state and local pensions, are allowing them to do so. Siedle highlights the absurdity of this practice, pointing out that managers are essentially getting paid for doing nothing.

In 2017, it was reported that 91% of private equity managers were charging fees on committed, uninvested capital. This means that investors were paying fees on money that they had committed to invest over a period of time, even though the manager was not actively managing it. Siedle argues that there is no justification for these fees, especially considering that alternative investment funds already charge significantly higher fees than traditional stock and bond managers.

Siedle’s investigations have revealed shocking findings, such as the State Teachers Retirement System of Ohio paying an estimated $143 million in fees on committed, uninvested capital. This revelation sparked outrage among teachers and raised questions about the transparency and accountability of pension fund management.

Despite the controversy surrounding this practice, pension officials and Wall Street firms have defended the fees, arguing that they are necessary to access the best investment opportunities. However, Siedle emphasizes that investors should focus on controlling fees, as they are one of the few aspects of investing that they can actually influence.

Ultimately, the issue of charging fees on uninvested capital raises important questions about the ethics and transparency of the money management industry. As Siedle aptly puts it, if a money manager’s sales pitch is convincing enough, they can get away with charging outrageously high fees for doing nothing. It’s up to investors to educate themselves and demand greater accountability from the managers who handle their money.