The California Public Employees’ System has asked the San Francisco Superior Court to give up jurisdiction of the $135 billion pension fund’s battle with the San Jose Mercury News. The pension fund has asked that the case be moved to Sacramento. Judge James Robertson will hear the motion Thursday, Nov. 14, thus delaying any decision on whether or not CalPERS will have to disclose the value of its $7 billion private equity portfolio indefinitely.
The motion was filed with the court on Monday by CalPERS’ attorneys Peter Mixon and Melanie Carver, who argued that since Sacramento is CalPERS’ primary place of business, the case should be heard in Sacramento County.
When the case does arrive before a judge, the Mercury News will be arguing for full disclosure of the value of the funds inside CalPERS’ private equity portfolio based on California’s Public Records Act. It will argue that the pension fund should disclose internal rates of return for each of the private equity funds in its portfolio so that it can evaluate how the pension fund is managing in a down market.
CalPERS, and California State Treasurer Phil Angelides argue that full disclosure of internal rates of return and interim performance data would be misleading, since interim fund performance is not a good indicator of what a fund is capable of returning once it is fully invested. Not only would such disclosure inaccurately reflect the value of its investment portfolio, but such disclosure would also amount to disclosure of a trade secret, a protection guaranteed by the state’s Public Records Act. Also, CalPERS argues, releasing performance data and violating the confidentiality agreements it signed with its limited partners would make the pension fund an unattractive investment partner and effectively shut it out of future investment partnerships. That would hurt its pensioners in the long run by denying them access to some of the most lucrative investment opportunities. Angelides, who won re-election to his post last Tuesday, is not likely to change his stance unless he is forced to do so by court order.
But, there is another way CalPERS could be forced to release private equity information – by the board itself. Besides the three direct appointees and one indirect appointee allotted to returning California Governor Gray Davis, there are four open seats on the CalPERS board that are elected by state employees. Those state employees eligible to vote have until Nov. 29 to cast their ballots. Of the leading candidates for the open board seats, all but one are in favor of releasing performance data on individual private equity investments. Historically, the board has been divided on the issue of disclosure, and new members could tip the balance toward releasing the information.
Members of the private equity community have come out in favor of CalPERS. The National Venture Capital Association has written the court in support of CalPERS’ position, as have general partners from investment firms such as Dominion Ventures, Littlejohn & Co., Providence Equity and Ticonderoga Capital (click here to read the letters).
Email Carolina Braunschweig