CalPERS goes for wide interpretation of fee disclosure law

Some aspects of AB2833, the California law requiring public investors to disclose fees and expenses, were vague, according to the pension plan.

The California Public Employees’ Retirement System opted to provide additional information in its inaugural report on fees and expenses as mandated by California law AB2833, the pension plan said at its investment board meeting on Monday.

“We’re striving for consistency across asset classes, clarity in terms of the character of the various cashflows involved and above all, transparency,” said Wylie Tollette, CalPERS’ chief operating investment officer, who will leave the pension plan on 5 January.

“So when in doubt, CalPERS took the approach of putting information in the report. We’ve hoped that we’ve erred essentially on the side of disclosure.”

The investment staff elected to include real assets in its report, Tollette noted, adding that the law isn’t completely clear on what constitutes an alternative investment vehicle. “That was subject to some interpretation,” he said.

AB2833 was enacted last year and applies to all new partnership agreements and new capital commitments under existing partnership agreements made on or after 1 January 2017

Tollette noted that as much as it could, CalPERS worked with its general partners to include fees and expenses related to most of its partnerships, including those prior to that date.

CalPERS’ investment team also included a column in the report indicating when fees and expenses were paid by netting them against distributions or capital calls, which represents the vast majority of cases for the pension plan, rather than paying fees and expenses directly.

Prompted by a question from CalPERS board member JJ Jelincic, Tollette also went on to clarify that CalPERS never technically pays the fees but instead contributes to the partnership, which in turn pays fees to GPs.

“What you do is contribute capital to a partnership, we get capital back,” he said. “What the partners do with that capital, they must use it to pay the general partner fees, to make investments, a variety of different things. But the legal character of anything we do is just capital call, capital distribution back to us. We’re a limited partner.”

Kit Crocker, an investment director at CalPERS, added that the distinction isn’t significant, and that it’s all the same cashflow at the end of the day.

Earlier this month, the US’s largest public pension said it paid $233.8 million in net management fees across 223 private equity funds in the fiscal year ended 30 June, up from $206.5 million over 224 funds in 2015-16, according to its 2016-17 annual report.

CalPERS, which has $326 billion in assets, has a 20 percent current allocation to alternatives, including 8 percent in private equity.