California pensions vary in approach to new PE reporting standards

  • CalPERS includes details on portfolio company fees, gross returns
  • Smaller institutions approach to PE disclosure law scattershot
  • California institutions discuss ways to standardize reports

California institutions are grappling with the requirements of a controversial law requiring public pensions to report the fees and expenses charged by private equity firms.

Assembly Bill 2833, which Gov. Jerry Brown signed into law in 2016, requires the state’s public pensions to create annual reports to show how much alternative-asset firms charged them in management fees, fund expenses, carried interest and a variety of other costs. The report must also show each fund’s net and gross returns, reflecting the spread between what an investment returns and what investors ultimately receive.

Technically, the only firms legally required to hand over their fund data are those that receive commitments from state and local government institutions after Jan. 1, 2017. Public pensions and other California state LPs are required to make “reasonable efforts” to obtain similar information from the managers of older funds, however.

The bill sailed through the legislative process with near-unanimous approval. It was opposed by public pension investment staffs that argued its effects could prove cumbersome — or result in PE firms refusing to raise money from California pensions.

Whether the latter has occurred remains unclear. But debut AB 2833 reports prepared by institutions like Los Angeles County Employees Retirement AssociationContra Costa County Employees’ Retirement Association and Los Angeles City Employees’ Retirement System differ in both scope and depth, indicating certain LPs had more success in collecting and processing reams of PE-related data.

The vast majority of LACERS’ private equity fund managers, roughly 75 percent of the 240-odd funds in its PE portfolio, did not provide the information covered by AB 2833. Only 11 of the 59 funds that provided LACERS with fee data were 2017 vintages, and therefore fully subject to the law.

Los Angeles County was able to obtain gross returns only from a handful of its alternative-asset managers. Northern California’s CCCERA’s PE portfolio, which is heavily weighted to funds-of-funds, recorded no fees paid by portfolio companies.

Los Angeles Fire and Police Pensions hasn’t prepared its official report yet, opting to wait for managers that closed funds in 2017 to provide valuations and other metrics, General Manager Ray Ciranna told Buyouts in an email. Only then will the $21.7 billion public pension system’s staff and consultants analyze what’s provided.

The LAFPP board received a preliminary version of the report at its Jan. 4 meeting, which included information about fund performance and valuations.

The effort to tabulate and assess whatever’s provided by the general partners will likely be substantial, Ciranna said. One California pension official confessed they delegated the preparation of their report to an outside consultant, likely saving investment staff from a “painful” data project.

Larger institutions

The AB 2833 report California Public Employees’ Retirement System staff presented to the board in December includes more information than any other seen by Buyouts, a product of the $357.8 billion retirement system’s Private Equity Accounting Reporting System, better known as PEARS.

PEARS enables CalPERS to segregate the individual costs associated with each of its PE funds, separating management fees from fund expenses — such as the cost of legal and auditing services — while also accounting for carried interest collected by the manager. The retirement system’s AB 2833 report included details about the fees charged to funds’ underlying portfolio companies, as well as costs associated with entities related to, but separate from, each vehicle’s manager.

Few institutions have the time or resources to track PE-related costs at a level this granular. And even with PEARS, which took five years of preparation to implement, CalPERS still had to request additional information from certain managers to complete their report, spokeswoman Megan White said.

CalPERS did not disclose what information it needed to request from its managers.

With institutions throughout California presenting varying reports about their private equity programs, CalPERS Chief Operating Investment Officer Wylie Tollette expects the look of AB 2833 reports to change over time.

“We know, this year, there’s going to be quite a variety of different approaches throughout the state,” he said, adding that the pension system has been in discussions with other public institutions throughout the state to see if there’s a way to standardize these reports.

“We were contacted by a couple of other systems in the state mainly to exchange some ideas on possible report formatting based on an ILPA template,” Ciranna said, referring to a standardized reporting template prepared by the Institutional Limited Partners Association in 2016.

“We still anticipate that this effort will take significant time and effort to complete the report. However, just like every other pension fund in the state, this will be our first attempt at compiling the information and each subsequent year’s reporting may get easier,” Ciranna wrote in an email.

Action Item: To read the CalPERS AB 2833 report, visit