Please CalPERS, more transparency

CalPERS has been debating a plan to restructure its private equity program, establishing what it’s terming its four pillars: traditional GP relationships; focus on newer managers; and two direct investment vehicles that would target health and technology innovation and long-duration investments in larger businesses. (All fairly public so far).

The CalPERS board heard more details on the plan at its meeting in December. One thing that stuck out to me was two CalPERS staffers, General Counsel Matthew Jacobs and Investment Officer John Cole, arguing that the two direct investment vehicles needed to be less transparent than the overall PE program.

Jacobs said at the board meeting that too much transparency “would defeat the entire purpose of the endeavor … [private investments] are private for a reason, which is the financial information needs to be private and the people running them have these types of preferences.”

In response to board questions, Cole said the new vehicles would be exempt from public-records and public-meeting requirements, my colleague Dietrich Knauth wrote in this issue’s cover story.

“Among the risks that we face is that we create a structure that is doomed to fail, that cannot actually operate in the private market,” Cole said. “An attempt to take private investing and make it public runs the risk of undercutting its very purpose and taking oxygen away from its ability to compete.”

In addition, the operating budget for the two direct investment entities would not be open to the public, Cole said.

Matthews and Cole were talking about public transparency. CalPERS staff, on the other hand, would need access to detailed information about portfolio companies, Board Member Margaret Brown proposed at the meeting. Staff members agreed with that assertion, saying CalPERS would get at least as much information from the new funds as it gets from its current GPs.

None of this is finalized. The board has not made any decisions yet. But I just don’t get why public transparency would have to suffer to make the plan work.

Why would the public have to be shielded from information about investment funds that make use of beneficiary and taxpayer dollars? This is a public institution making investment decisions in a new and potentially unique structure. Public transparency is more important than ever.

And why would the operating budget for these investment vehicles not be open to public scrutiny?

I know the argument is protecting trade secrets and not revealing confidential deal information. Some details about investments would have to be hidden to ensure CalPERS was competitive as a private-markets investor.

But beyond those details, other information like performance, investment rationale, how much has been invested in specific companies, and especially the operating budget, should be open for public view.