The Myth of Transparency - Meaningful Critique Requires Understanding

A recent 255-page report concerning CalPERS, 'America's Misled and Misleading Pension Leader’, has generated considerable debate in the private markets industry. The report is not a report by CalPERS, rather it is a “forensic Investigation of CalPERS”, prepared for the Retired Public Employees’ Association of California (RPEA). While the report focuses on one of the world's largest pension funds, many of the questions it raises are familiar to us. At Avida, we regularly encounter similar discussions when advising pension funds on private markets. One of the recurring themes we see is that the strategic rationale for investing in private markets is not always translated into a governance framework that enables all stakeholders - from trustees and investment committees to supervisory bodies - to fully understand the objectives, trade-offs and practical realities of these investments.

That is why this report is interesting beyond its specific conclusions. It reflects a number of recurring misconceptions that we encounter in practice - not because they are unique to the report, but because complex private market structures are often assessed without sufficient understanding of how they are designed to operate. Without taking any position on the conclusions of the report in this blog, I would like to highlight three examples - transparency, management fees on committed capital, and so-called "zombie funds" - where the reality is considerably more nuanced than it may first appear.

Transparency

There is a certain nostalgia in the way people talk about transparency today. As if it has always been a simple matter of “just disclose everything,” and any deviation from that ideal must be a sign of mismanagement or worse, deception. But anyone who has worked in Alternative Investments - the other AI - knows that the story is far more nuanced.

For years, transparency in private equity and other alternative asset classes wasn’t just limited; it was a huge challenge. Not because investors were hiding anything, but because the tools we have currently simply didn’t exist.

Imagine this: every quarter, dozens of managers send you thick reports, each in their own format, each with their own definitions, each with their own quirks. To build a portfolio company level database, you would have had to manually retype every number into a custom system. And once the portfolio was already running, going back in time to rebuild that data would have been a Herculean task - with no immediate payoff in returns. So no, early private equity portfolios didn’t have the kind of structured, searchable, real‑time dashboards we take for granted today. But that never meant oversight was lacking. Portfolio managers were required to read every report, monitored every development, and spoke directly with GPs. They sat on advisory committees. They were in a position to know exactly what was happening - even if the data wasn’t sitting neatly in a cloud database for all to see.

Transparency wasn’t absent. Rather, it was internally available through documents, meetings and direct engagement with managers, rather than publicly available through today's digital reporting tools.

It’s worth remembering that in California, it wasn’t legally required to disclose detailed private equity fund information until 2017. Before that, disclosure was limited to performance data and top line fees.

Fast forward to today, and the landscape looks entirely different. IT & data service providers have industrialised data collection. Internal systems can ingest GP data automatically with the use of AI. Portfolio company transparency is no longer a luxury - it’s standard. This shift didn’t happen because past practices were “wrong.” It happened because the IT tools made it possible. And as the tools improved, so did expectations and requirements.

For large institutional investors with decades-old private market portfolios, integrating today's reporting standards into established data and control environments is itself a significant operational challenge.

Paying management fees on committed capital

The authors assume “fund pays fees of 2 percent on total unfunded commitments” to conclude a total of USD 1.24bn and imply this is paying “for nothing”.

First thing to note is that large LPs often pay less than 2%, which is acknowledged by the authors through the addition of “even if the effective rate were materially lower” later in the text.

Second part of the assumption includes the basis to pay on of “total unfunded commitment”. Management fees are mostly based on committed capital in the “Investment Period”, often the first 5 years of the fund. At the start of the Investment period, all committed capital is unfunded. This committed capital gets invested and as such the unfunded commitment is reduced during the investment period.

Simply assuming that investors pay commitment fees on “total unfunded commitments” is wrong. Total unfunded commitments are unfunded commitments in funds that are in the investment period, but also unfunded commitments in funds that are past the Investment period. The latter accounts for a significant part of the unfunded commitments, as GP’s often reserve capital for follow-on Investments and/or Equity cure situations in the portfolio as well as management fees and other costs that need to be financed after the Investment period.

The last remark here is that the authors state that these fees are paid “for nothing”. Commitment fees exist for a reason: as soon as commitment fees start being paid GPs start sourcing deals. To avoid the incentive for GPs to rush into investments just to earn fees, the fees during the Investment period are based on committed capital. Therefore, the structure aligns incentives. This is a standard structure that is endorsed. If fees are negotiated, it is not this structure that is debated, it is the level of fees, as the structure aligns the LP with the GP.

Ten-year-old “zombie funds”

Not every fund that crosses the ten-year mark suddenly lurches into “zombie” territory - far from it. Funds generally have a 5-year investment period, allowing fund managers to make their last investment even 4-5 years into the lifetime of a fund. In buy-outs, often follow-on investments (additional investment in existing portfolio companies) are made after the investment period. For Venture Capital also a lot of investments are done in subsequent funding rounds of existing portfolio companies after the investment period.

After investments are made portfolio companies on average are held 4-5 years in buy-outs to implement their strategic goals, in Venture Capital these holding periods are often longer. Some companies reach their strategic goals quickly, while others can take somewhat longer. Hence, it is not uncommon for a fund that makes investments in multiple portfolio companies during the initial 5 years of their existence to run past the 10-year lifetime mark.

Industry research backs this up: MSCI notes that the average buyout fund now liquidates after roughly 12 years and venture funds after about 15 years. In fact, many older funds still hold substantial NAV because they contain real, active assets that simply need longer to mature, not because they’re shambling aimlessly through the market.

So, while “zombie fund” makes for a dramatic headline, the reality is more nuanced: age is a data point, not a diagnosis, and plenty of long‑running funds are still hold companies that are very much alive and kicking.

A Final Thought: Criticism is Easy. Context is Hard

This report offers an interesting example of a broader challenge within private markets: complex investment structures are often judged through the lens of public markets, where expectations around transparency, fee structures and investment horizons are fundamentally different.

At Avida, we encounter these discussions regularly. Whether reviewing governance arrangements or supporting pension funds with their private markets strategy, we often find that misunderstandings originate much earlier. The strategic rationale, governance framework and practical implications of private market investments have not always been clearly articulated from the outset. Once those foundations are missing, it becomes much easier for misconceptions to take hold.

That is why meaningful criticism requires more than headlines or isolated data points. It requires an understanding of how private markets operate in practice, why certain structures exist and what trade-offs they are designed to address. None of this suggests the industry should avoid scrutiny - quite the opposite. But constructive scrutiny starts with context. Only then can investors distinguish genuine shortcomings from characteristics that are simply part of how private markets work.