It could almost be an episode of White Lotus.
Two Michigan pension fund officials attended a 2018 Apax Partners event at the Four Seasons Hotel in Florence, Italy, that featured “custom tailored activities and itineraries,” including tours of the Tuscan countryside on vintage Vespa scooters and a gala dinner at the 17th Century Villa le Corti.
The bill for the state: less than $200 for each official, according to public records obtained by Bloomberg. And Michigan is hardly alone in letting private equity firms foot most of the bill for luxury travel and trips by state pension fund managers, who are public employees.
Gaw Capital paid for most of the $21,127 business-class airfare for an Illinois fund official attending its 2018 meeting at the Renaissance Resort in Okinawa, Japan — the state paid just $392. Florida officials visited Milan, Rome and Paris last June, courtesy of JPMorgan Chase & Co. funds. Other funds have since covered Florida officials’ trips to London, Stockholm and Helsinki.
Those trips were all for officials to attend meetings as members of private equity firms’ limited partnership advisory councils, which have developed a reputation for taking place in posh, far-flung destinations.
‘Worst Was Manhattan’
“I can’t remember an advisory committee meeting that wasn’t in a nice place,” says Joseph John “J.J.” Jelincic, a retired staffer and director of the California Public Employees’ Retirement System. “Probably the worst was Manhattan.”
Such LPACs are supposed to be a means of giving state officials a voice in how the firms invest public money. But some worry that the luxurious trips may unduly influence the officials who are treated to them.
“The cost of junkets is peanuts compared to other fees,” says Jeff Hooke, a finance professor at Johns Hopkins University and a critic of private equity. “I’m more concerned that these officials spend hours hearing one side of the story. They’re not hearing from the index fund managers.”
The operations of such LPACs are also shrouded in secrecy, with many states exempting private equity contracts from public disclosure laws that apply to other vendors. The states themselves also release little information about officials’ participation.
Permissible Practices
When it’s permissible for public officials to accept heavily subsidized travel from investment managers or their funds, and how the practice is disclosed, varies by state and even by agency.
The Michigan Treasury Department’s office said the disclosed costs for the two pension fund officials — Peter Woodford and Alice Huber — who traveled to Apax’s Florence meeting only included the state’s portion.
“As fiduciaries responsible for monitoring investments, pension staff attend business meetings at the hotel where the partner hosts them,” Michigan Treasury spokesman Ron Leix said in a statement. “Alice Huber has been retired from Michigan for several years now, and Peter Woodford has no recollection of having ever attended any optional activities outside of the business meetings.”
Apax confirmed that it had an LPAC meeting in Florence in 2018 but said it wouldn’t comment on individual participation. Details of the meeting’s leisure activities were posted online by an event production firm.
$850 a Night
The Illinois State Board of Investment, which manages several pension funds, says its staff are not permitted to accept travel-related reimbursement. But the state’s Teachers’ Retirement System (TRS) does allow such reimbursement — its senior investment officer for real estate, Tim Hays, is the official who traveled to Okinawa in 2018.
Gaw Capital declined to comment on Hays’s trip. Last year, Hays also stayed in a $718 a night room in Nashville, paid for by Starwood Capital, and an $850 one in New York covered by Blackstone.
“Attendance at limited partner advisory board meetings for investment funds is an important fiduciary responsibility for large investors offered a seat on a board,” Dave Urbanek, a TRS spokesman said in a statement. “An advisory committee is one of the few opportunities that a limited partner such TRS has to exert any governance oversight over fund activities.”
Urbanek said any staff travel is approved by internal investment committees and that travel in “excess” of the TRS and Illinois state policy is prohibited.
Allowing investment partnerships to discreetly cover LPAC travel expenses helps defray costs and eliminates “some, but not all, of the optics of public employees traveling,” consulting firm Funston Advisory Services explained in a 2015 report for the New York City pension system. The trips themselves can be useful for due diligence, the group added.
Walter Shaub, former director of the US Government Ethics Office, said the role of LPACs should be more transparent.
“The level of secrecy is just incompatible with the duty these government officials owe the citizens of their states,” said Shaub. “They could select funds that send them on luxury trips and the public has no capacity to know since the government has pledged secrecy.”
Hand-Picked Participants
The participants in those trips are often hand-picked by the private equity firms to serve on LPACs. Although limited partnership agreements are closely guarded, several obtained by Bloomberg indicate how the advisory committees operate.
For instance, a 2011 Cerberus contract states that LPAC members are chosen at the firm’s “sole discretion.” An Apollo agreement says the firm appoints LPAC members to help “review any potential conflicts of interest situations involving the management company or the general partner.”
Cerberus and Apollo both declined to comment.
Florida is one of the more transparent states when it comes to its officials traveling on LPAC business, with the State Board of Administration listing such trips on its website. JPMorgan, which helped pay for many overseas trips for Florida fund officials, declined to comment. The state board said in a statement that many of the trips related to European property funds.
“LPAC participation is important and enhances the SBA’s ability to ensure manager accountability, provide enhanced oversight of the investment, and monitor risks that could impact investments,” the board said. “In the case of real estate, it is important to tour assets owned by the fund in the current market where the assets are located.”
–With assistance from Martin Z. Braun.
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