Amended California PE transparency bill to exclude many existing funds

  • CalPERS amendments limit compliance to new commitments
  • Amended version to be considered by appropriations committee Friday
  • LACERS may go “back to the drawing board” on its objections

California Treasurer John Chiang and Assemblyman Ken Cooley plan to amend a state bill requiring public pensions to disclose more information about private equity fees and expenses, sources told Buyouts.

The amended version of AB 2833 will be presented at the California State Assembly’s appropriation committee meeting on Friday, sources said. The bill was sponsored by Cooley with significant input from Chiang, who sits on the boards of California Public Employees’ Retirement System and California State Teachers’ Retirement System.

AB 2833 requires general partners to provide California pensions with reports detailing fees and expenses paid by their funds, investors and portfolio companies, as well as gross and net return information. The pensions would then publish this information each year.

The new amendments are the result of suggestions compiled by CalPERS staff, which previously indicated it would support AB 2833 with significant changes to provisions requiring existing funds to come into compliance.

Limiting the scope

New amendments agreed to by Cooley and Chiang will limit AB 2833’s scope to commitments entered from Jan. 1, 2017, onward. Under the amended version, pre-2017 vintage funds would disclose additional fee information only if a state or local pension were to commit follow-on capital to an active fund.

“The thing that gives us some confidence is the fact that CalPERS (and possibly CalSTRS) is already working on getting the type of disclosure the bill is asking for,” said Deputy Treasurer Grant Boyken. He added that California’s largest pension plans are “going to be asking that of their existing partners.”

Subsequent versions of the bill will also define which “related parties” would have to report fee and expense information, sources said.

Cooley’s office will also craft language separating the mandatory reporting of carried interest from that of fees and expenses, as calculated by retirement systems. Another amendment will recognize the public pensions’ ultimate authority and fiduciary duty on matters relating to investment.

It’s unclear how an amended version would affect the previous assessments released by smaller pensions like Los Angeles City Employees’ Retirement System and Los Angeles Fire and Police Pensions, both of which opposed AB 2833 as it was originally written. LAFPP’s board formally opposed the bill at its May 19 meeting. LACERS’s board adopted a similar proposal this week.

Both Los Angeles pensions warned that the bill could lead to the possible exclusion of California pensions from certain funds, according to investment memos compiled by staff.

The Treasurer’s office had yet to analyze the critiques offered by the smaller retirement systems, though Cooley said he expected “the big pension funds will work through the most effective ways to implement these requirements, and smaller pensions will benefit from that pathfinding.”

“Even if there are costs in reaching compliance, that’s where the industry is moving toward,” Boyken said. “Every public pension should have full transparency of the costs they’re paying.”

LACERS may go “back to the drawing board” on its recommendation depending on how an amended bill is ultimately constructed, said LACERS spokesman Tom Moutes. LAFPP General Manager Ray Ciranna could not be reached for comment.

To date, the bill attracted support from both sides of of the aisle, said Cooley, a Democrat. “We’ll see how things unfold as we move forward,” he said. “In general, I see this in furtherance of a long-term health and preservation/maintenance of pensions in the state.”

Action Item: CalPERS staff’s suggestions:

Photo: Assemblymember Jerry Hill (L) speaks with State Controller John Chiang before California Governor Jerry Brown delivers his State of the State address in the Assembly Chambers at the State Capitol in Sacramento, California January 18, 2012. REUTERS/Max Whittaker