- CA Assembly Bill 2833 requires more disclosure of fees, expenses
- Added disclosure would prevent LA Fire and Police Pensions from investing with certain managers
- Staff recommends board oppose the bill
Los Angeles Fire and Police Pensions staff opposes a California Assembly bill requiring state and local retirement systems to report more information about private equity fees and expenses.
“As it’s currently drafted, we think it’s a little bit problematic simply because it goes into detail regarding the [funds’] underlying companies,” the pension’s general manager, Ray Ciranna, told Buyouts. “It’s one of our highest performing asset classes. So we don’t want to do anything to jeopardize our ability to get into any high-profile funds.”
As written, AB 2833 requires fund managers to disclose fees and expenses paid by their fund investors and the vehicle’s underlying portfolio companies. Retirement systems would then have to disclose this information, along with gross and net rate of return data for each of their funds, at an annual public meeting.
Los Angeles Fire and Police Pensions’ $1.56 billion private equity portfolio includes more than 300 PE funds, and certain general partners would likely oppose any rule requiring them to publicly disclose any information about their vehicles’ underlying portfolios, Ciranna said.
“Information and transparency is good, but if it’s going to damage the competitive advantage of the GP and the fund, that’s a problem,” he said.
Furthermore, the new rules may cause certain firms to bar the LA pension from investing in their funds, according to a staff memo.
At its May 19 meeting, the staff of Los Angeles Fire and Police Pensions will recommend that the pension’s board oppose Assembly Bill 2833 “since it has the potential to limit future private equity investment opportunities and would require additional staffing and/or contractor resources.”
Quantifying the administrative or financial burden LA Fire and Police Pensions would bear if AB 2833 passes as written is difficult, Ciranna said. The pension would likely distribute its new reporting obligations to internal staff or an outside consultant.
AB 2833 was sponsored by Assemblyman Ken Cooley with the support of California Treasurer John Chiang, who also sits on the board of the state’s two largest pensions. The larger of the two, the $290.4 billion California Public Employees’ Retirement System, recently released a memo in support of AB 2833, albeit with several major caveats.
“Calpers strongly supports AB 2833 in principle, but several amendments are necessary to minimize negative impact on Calpers operations, reduce costs, and allow for standardization in reporting among the private equity funds in which Calpers invests,” Calpers staff wrote.
Action Item: LA Fire and Police Pensions at www.lafpp.com