California proposes bill mandating PE fee disclosure

Proposed by state assemblyman Ken Cooley and backed by treasurer John Chiang, the bill would not only require GPs to provide detailed fee information to state pensions, but would also require pensions to disclose that information to the public.

A bill requiring that private equity firms disclose detailed fee information to California public pensions has been introduced in the California state legislature in order to “increase the transparency of fees paid” to private equity general partners.

Under the bill, every public pension or retirement system would be required to mandate its private equity fund managers, partnerships, portfolio companies and affiliates to fill out a form including the fees and expenses paid by the pension directly to the fund managers; the fees and expenses paid by the fund, including carried interest; the fees and expenses paid by the portfolio companies to GPs and affiliates.

The bill, proposed by assembly member Ken Cooley (D-8th District), would also require that public pension funds and retirement systems “disclose the information received in connection with the limited partner agreements at least once annually at a meeting open to the public.”

“Because fees paid to private equity general partners reduce returns, public fund trustees need to be able to see and understand all of the fees they are charged,” Cooley noted in the bill proposal.

The requirements would apply to any contracts entered into, extended, renewed or amended on or after 1 January 2017.

California state officials have been some of the most vocal in the US in terms of speaking out in private equity’s current fee transparency debate. When the Institutional Limited Partners Association (ILPA) released its fee template last month, California State Controller Betty Yee has called on the US Securities and Exchange Commission to mandate the template in order to increase fee transparency for private equity investors.

In October, State Treasurer John Chiang called on the investment committee chairs Henry Jones of the California Public Employees' Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS) Sharon Hendricks to work with his office to develop state legislation to enforce fee disclosure by private equity firms.

Chiang is a sponsor of Cooley’s bill, a representative from Cooley’s office told pfm.

The likelihood of the bill’s passage is unclear, as it would require a majority vote by the assembly before moving on to the state senate. According to the bill’s history on the California legislature website, the bill may be heard in committee on 22 March.