October 31, 2013
It’s rare that people involved in public debates openly acknowledge that they were wrong and change their position. (I’m sure that I would if it ever happened.) For this reason David Crane deserves enormous credit for acknowledging in his Bloomberg column that pension funds should fully disclose the fees and returns from their alternative investments.
This acknowledgement came about as a result of an exchange with David Sirota. Sirota had criticized a number of public pension funds (especially Rhode Island’s pension fund) for turning over a substantial portion of their assets to hedge funds. The managers of these hedge funds charge high fees for managing pension assets, often taking 2 percent off the top and then a share of the earnings.
Crane argues that this arrangement benefits the pension funds because the hedge fund managers are able to outpace the market by enough to cover these fees and still leave the pensions coming out ahead. Sirota disputed this claim, but noted that we don’t have the information that would allow us to answer this question.
It was in this context that Crane acknowledged that most pension funds don’t disclose enough information for the public to be able to determine whether they are benefiting from their investments with hedge funds. There is no excuse for not making this information available to the public and it’s good to see that Crane agrees with this position.
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