SAN FRANCISCO (Reuters) - California’s state treasurer, John Chiang, on Monday called for state legislation requiring private equity firms to disclose all fees charged to California public pension funds.
In a letter to the country’s two largest public pension funds, Chiang said the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, along with other limited partners, “pay excessive fees to private equity firms and do not have sufficient visibility into the nature and amount of those fees.”
Chiang urged that all California public pension funds, as well as the University of California Retirement System, work with his office to develop legislation to place fee disclosure requirements on private equity firms.
Public pension funds, which are funded by workers’ earnings and taxpayer funding, are among the largest investors in private equity.
Calpers, the country’s largest public pension fund, with approximately $293 billion of total fund market value, was an early investor in private equity some 25 years ago. As of late March, Calpers’ investment in private equity was $28.9 billion.
Calstrs, which has total assets of about $184 billion, had an allocation of about $18.4 billion in private equity as of late August.
Public pension funds have been under increasing pressure to track fees paid to private equity. Last month, the Institutional Limited Partners Association announced it would seek a better understanding of “all monies paid to the fund manager.” Calpers has said it will begin reporting the amount of carried interest paid to general partners later this year.
Chiang applauded these efforts, but noted “more needs to be done to ensure public pension funds and their trustees have the transparency they need to determine the value of private equity investments.”
Chiang proposed not to impair existing contracts with general partners. Instead, disclosure requirements would include gross management fees, management fee offsets, fund expenses and carried interest, as well as related party transactions.
Calpers and Calstrs did not immediately respond to requests for comment.
Ludovic Phalippou, finance professor at Oxford University’s Saïd Business School, praised Chiang’s efforts, but said pension funds need to disclose past fees paid and the total fees charged by each fund as well.
“This is actually the most important and difficult task,” said Phalippou.
Reporting by Robin Respaut; Editing by Jeffrey Benkoe