California transparency bill moves to Assembly floor

  • Bill requires enhanced transparency on fees, expenses
  • Appropriations committee approves AB 2833
  • CalPERS amendments still being written

The California State Assembly’s appropriations committee unanimously approved a bill requiring enhanced disclosure of private equity fees and expenses. AB 2833, sponsored by Assemblyman Ken Cooley with the support of Treasurer John Chiang, will now move to the Assembly floor.

AB 2833 requires PE general partners to provide California pensions with reports detailing fees and expenses paid by funds, investors and portfolio companies, as well as gross and net returns. The pensions would publicly report the information annually.

The appropriations committee on May 27 approved AB 2833 by a 20-0 vote.

Cooley’s bill will likely undergo several alterations before it reaches Gov. Jerry Brown’s desk. California Public Employees’ Retirement System staff successfully lobbied for several amendments, including one that would limit disclosure requirements to commitments made after Jan. 1, 2017.

Contrary to a previous Buyouts report, legislative staff was unable to include the amendments that CalPERS proposed in time for Friday’s appropriations committee meeting. Sources said the staff will formalize language for those amendments in coming weeks.

Even so, the proposed transparency guidelines could present challenges for many GPs.

California’s state and local pension systems include some of the private equity industry’s largest and most prominent investors. Several, including CalPERS and California State Teachers’ Retirement System, launched initiatives in recent months to improve their accounting of fees and expenses, as well as carried interest.

Chiang, who holds seats on the boards of CalPERS and CalSTRS, has sharply criticized the industry’s fee-and-expense practices. In a statement, Chiang said the new disclosure requirements would uncover “shadow fees” charged by PE firms.

“By requiring fee disclosure for California public pension funds, some of the largest investors in the private equity marketplace, AB 2833 will serve as a catalyst to bring about greater transparency for all private equity investors,” he said.

Action Item: View AB 2833 and track its progress: