California Requires Public Pension Disclosure of Alts Fees

The controversial law will go into effect January 1, 2017.

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 draft.

Both CalPERS and CalSTRS have already endorsed the ILPA template.

Related: Taking the Guesswork Out of Private Equity Fees