(Adds quotes and context from board meeting)
By Robin Respaut
Nov 14 The California Public Employees’
Retirement System said on Monday it shared about 14 percent of
the profit made on private equity investments in the past year
with firms managing the money.
The announcement by the nation’s largest public pension fund
marks a milestone toward greater fee disclosures for private
equity assets, which make up $26.4 billion or almost 9 percent
of the total fund. The move is sure to be noticed by other state
and city pension funds.
CalPERS and other large public pension funds are under
increasing pressure to track and disclose the costs of private
equity investments. A new California law passed this year
requires the state’s public pension funds to disclose more about
the fees paid to manage the funds.
CalPERS paid $228.4 million in fees in fiscal year
2015-2016, and shared $539 million in profits with private
equity firms. In total, CalPERS realized $3.26 billion in gains
from its private equity portfolio last year.
The asset class returned 1.7 percent in fiscal 2015-16. In
fiscal year 2014-2015, when the asset class returned 8.92
percent, the pension fund paid $431.7 million in fees.
CalPERS has been working with the Institutional Limited
Partners Association (ILPA) to shed more light on fees paid to
manage funds and profits shared with private equity firms. Few
public pension funds disclose these costs, despite a growing
consensus from government officials, regulators, and the public
to do so.
On Monday, some members of CalPERS Board pushed for further
transparency by requiring private equity firms to reveal the
portfolio fees, offsets or management fee waivers that they may
collect.
“If somebody is not willing to disclose to us these kinds of
fees, I’m not sure it’s somebody we want to play with,” said
CalPERS board member J.J. Jelincic.
“We are the gold standard,” said fellow board member Richard
Costigan. “Every one of those funds should be disclosing and if
they are not, or they are refusing, we should not be doing
business with them.”
CalPERS consultants advised prudence when setting strict new
rules that could dissuade firms from working with CalPERS. The
asset remains highly competitive, said Michael Moy of Pension
Consulting Alliance, and private equity firms have “absolutely
no trouble getting commitments from investors.”
“You are not alone, but you are darn near it,” Moy said.
“They are very reluctant to give any kind of ground in
negotiations.”
(Reporting by Robin Respaut; Editing by Daniel Bases and Andrew
Hay)