A new law passed by Maryland will force its state retirement system to reveal the true amount it pays outside managers in fees.The bill, which was passed unanimously by the state legislature and signed into law by Gov. Larry Hogan, requires the Maryland State Retirement and Pension System (SRPS) to begin reporting annually the amount of carried interest it pays on any assets in the system.

Carried interest is earned by investment managers in private markets, such as private equity and private real estate, and is the amount that an investment manager retains as an ownership interest in the investment profits generated by the partnership. Carried interest typically represents 20% of the profits generated, but that proportion may be negotiated among the parties involved.

Because carried interest represents shared profits that are retained by the general partner rather than paid by the investor, it is not typically reported as investment fees paid. However, the new law will change that.SRPS is subject to a fee cap of 0.5% of the market value of its assets, not including real estate or alternative investments, which are not subject to any fee cap. And the amount of those carried interest fees that haven’t been reported is fairly significant—as much as 35% of total fees, according to a report from The Baltimore Sun.

Source: New Maryland Law Requires State Pension to Reveal All Fees | Chief Investment Officer