Will CalPERS be forced to reveal the performance of all the private equity funds in its portfolio?
Yes. That is, unless a general partner (GP) argues that his fund’s IRR is a trade secret. Here, the burden of proof lies with CalPERS and its GPs. A referee will hear arguments and submit his recommendations on a case-by-case basis to San Francisco Superior Court Judge James Robertson, who will make a final decision during a Jan. 30th hearing in San Francisco.
Will CalPERS’ GPs be forced to identify all the companies in their portfolios?
No. That, says Judge Robertson, is a trade secret. The San Jose Mercury News, which brought the CalPERS suit can argue otherwise – again, on a case-by-case basis. Here, the burden of proof lies with the Mercury News. Any arguments to name all the companies held inside a private equity firm’s portfolio would be heard by a referee, who would submit his recommendations to Judge Robertson. A judicial decision would be made Jan. 30.
Will CalPERS’ GPs be forced to disclose the valuations of their portfolio companies?
No. Valuations, says Judge Robertson, are a trade secret. However, each CalPERS GP must certify that it has only disclosed the valuation of each portfolio company to its limited partners and to other parties subject to confidentiality agreements. If the GP cannot certify that a portfolio company’s valuation has not been kept secret, then the Mercury News can ask for that information. Here, the burden of proof lies with the Mercury News, which can submit arguments to a referee. The referee will submit his recommendations to Judge Robertson for a decision on Jan. 30.
How will all of this work?
CalPERS’ GPs have until Dec. 9 to file arguments that the IRRs of their funds constitute a trade secret. The Mercury News has until Dec. 19 to argue otherwise. CalPERS’ GPs must certify that the names of the companies in their portfolios – and the companies’ valuations – are trade secrets by Dec. 9. The Mercury News can argue for disclosure on a case-by-case basis and file those papers with the court by Dec. 19. A court-appointed referee will begin hearings on both matters Jan. 13. He will submit his recommendations to Judge Robertson by Jan. 23, who will then evaluate the referee’s recommendations and make a final decision on what CalPERS will have to disclose to the Mercury News in a hearing on Jan. 30.
What about CalPERS’ internal evaluations of private equity fund performance?
CalPERS once posted its own evaluation of private equity fund performance on its Web site. The evaluation stated whether CalPERS believed a fund was performing better or worse, but it did not post IRRs. Judge Robertson has tentatively ruled that CalPERS’ past evaluation of fund performance does not constitute a trade secret, since its performance evaluation was qualitative (i.e. better than expected or worse than expected), rather than quantitative (i.e. actual IRRs). CalPERS may argue that such disclosure will make it an unattractive investment partner, effectively shutting it out of lucrative investment opportunities in the future. CalPERS has until Dec. 9 to submit those arguments to the court. The Mercury News has until Dec. 19 to file a counterargument. Judge Robertson will make a decision on the matter on Jan. 30.
Contact Carolina Braunschweig