CalPERS told to disclose performance data

A US court has ruled that the California public pension fund must disclose its investments unless it can prove the information contains protected trade secrets.

The California Public Employees’ Retirement System (CalPERS) has lost a case brought by a local California which called for the publication of the fund’s private investment performance data.


A San Francisco Judge James Robertson ruled that the CalPERS has three weeks to make individual rates of return public. The fund, which has over $20bn allocated to private equity and makes average annual new private equity commitments of over $3bn, will only be excused from disclosing data where it can prove that the information is confidential. CalPERS has relationships with 125 different private equity firms and has invested in over 300 funds. Its allocation to PE is broadly diversified, with some 35 per cent allocated to both buyout and growth capital, 25 per cent to venture and between five and ten per cent allocated to distressed and other special situation funds. 


The lawsuit had been initiated by a California-based newspaper, the San Jose Mercury News, which argues that the fund’s 1.3 million members have the right to now details of the performance of the largest private equity investor in the United States. CalPERS is arguing that such disclosure will reveal inforamtion about particualr funds and companies that can be classified as trade secrets.


CalPERS has previously published internal rate of return (IRR) data about its private equity investments when in 2001 fund specific details were posted on its website. After considerable media coverage and pressure from the GPs managing the funds concerned, the information was removed. The paper alleges that CalPERS, “embarrassed at the devastating losses which shriveled its portfolios […] decided that it would no longer make those records available.”


In an interview with Private Equity International in July this year, Rick Hayes senior investment officer for CalPERS' Alternative Investment Management Programme, said the website posting was “an accident. People misused the rankings – so the lesson we had was that until there's a better industry standard and until people have better ways of looking at these things it serves nobody – GP or LP – to have information flying around the Internet.'


The San Jose Mercury News was able to bring the case because, as a public pension manager, CalPERS is subject to the US Freedom of Information Act [FoIA], obliging it to disclose information requested by a member of the public.


The CalPERS suit is the latest in a series of cases in which US newspapers have taken legal action to bring about greater transparency in public funds investment in private entities. In early October, the University of Texas Investment Management Company’s (UTIMCO) published investment performance data following a report in the Houston Chronicle which claimed that UTIMCO had reneged on an agreement announced in 1999 to publicly disclose returns on the funds. The Boston Globe is also leading a case against the Massachusetts state pension plan, which has also suffered as a result of a downturn in its venture capital investments.


The judge also set a hearing for January 29 which will allow CalPERS to make its argument that disclosure would harm the pension fund's ability to invest in private equity. There is a concern amongst public sector limited partners that private equity funds will not allow them to invest in their funds on account of these investors' inability to comply with traditional non-disclosure rules in private equity fund agreements. A number of these investors, CalPERS and UTIMCO included, have expressed concern over this prospect of being excluded from top performing funds.


General Partners have argued that the data disclosed is misleading and can never been seen as accurate on account of the dynamic nature of a fund's IRR where multiple cashflows create a constantly changing picture. They also argue that detailed disclosure, where financial information about the portfolio companies within a fund is disclosed could damage that company's prospects and performance.