Singled Out, Scrutinized Because of its Own $uccess. Private equity has created enormous wealth for its managers over the past decade - generating far more for the fund managers than for fund investors, like U.S. pension funds.  A study prepared for the Financial Times by academics at Yale and Maastricht University provides the supporting statistics. Those who are situated at the top of an industry expect to be challenged, if not vilified by some.  With such daunting prospects, it's not unusual for leaders and leading personalities to try and maintain a low profile.  That, of course, is not possible when seeking nomination as the Republican candidate in the upcoming presidential election, as Mitt Romney, a former PE executive, is doing. And that's his prerogative. Yet, while exposing himself to the bright white lights of political scrutiny, he's also exposed his former industry - the private equity business - to the same scrutiny, that has no visible end in sight.  And, in response to pressure from Republican opponents and others, Mr. Romney on Tuesday released his tax returns. Eye-Opening PE Returns. From 2001 to 2010, U.S. pension plans on average made 4.5% a year, after fees, from their investments in private equity - net of fees and expenses paid to the managers, which include average annual management fees of 4% of invested capital, as well as a variety of other fees and a fifth of investment profits.

“Assuming a normal 20% performance fee, this would amount to about 70% of gross investment performance being paid in fees over the past 10 years.” -- Martijn Cremers, Yale Professor.

'Two and Twenty'. Private equity describes its fees as “two and twenty” - a 2% management fee and 20% share of profits.  However, the management fee is usually calculated as a proportion of total capital committed by the investor, which takes time to invest.  This means that, in the early years, the management fee can be a much higher proportion of actual cash invested.

e.g. - if a $1 billion fund invests $100 million in year one, the $20mn management fee would be 2% of committed capital, but 20% of invested capital for that year.

From 1991 to 2000, U.S. pension funds paid an average 2% of invested capital each year in management fees, and received 21 % returns, after fees, annually from their private equity investments, according to data from the CEM Benchmarking database used for the study. The database covers about a third of US pension fund assets. The rise in management fees since 2000 may reflect greater fundraising, meaning that more funds are in the early investment phase when fees are high.  The increased use of 3rd-party fund of funds to invest in private equity could also have added an extra layer of fees. The Private Equity Growth Capital Council, a trade body, said that calculating fees on the basis of committed capital was the industry standard, and it was inappropriate to compare fees on the basis of invested capital. To access the reference link, go to:   [CNBC.com, 1/24/12, which posted the FT.com story].