California Governor Jerry Brown
has signed into law a bill requiring public pension funds in the state to
disclose fees, expenses, and carried interest paid on alternative investments.
The new law, which affects
commitments to private equity, venture capital, hedge funds, and absolute return
funds, will apply to investments made on or after January 1, 2017.
“California taxpayers and
pension beneficiaries will now get to go behind the curtain to view the
previously hidden fees and charges paid to Wall Street firms,” said State
Treasurer John Chiang, who sponsored the bill.
Public pensions based in California—including the California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS)—will be
required to “undertake reasonable efforts” to obtain and disclose fee
information, as well as the gross and net rate of return of alternative
investment vehicles, at least once annually at a meeting open to the public.
Some funds, including CalSTRS,
had previously voiced concern that disclosure requirements would limit their
ability to invest in alternative assets.
In a statement in May, the Los
Angeles Fire and Police Pensions said the bill would “require sensitive
information regarding the underlying position(s) of private equity funds,”
which are “considered proprietary information.”
“There are several private
equity funds that have made the decision to exclude public pension plan
investors within the state of California from investing due to disclosure
requirements,” the fund continued. “Passage of this law will most likely increase
the number of private equity funds with such restrictions.”
Since then, the bill had been
watered down, dropping the requirements to disclose information on existing
investments as well as removing mention of the Institutional Limited Partners
Association (ILPA) fee reporting template, usage of which was required by the initial
Both CalPERS and CalSTRS have
already endorsed the ILPA template.
the Guesswork Out of Private Equity Fees