The board of the Los Angeles City Employees' Retirement System (LACERS) recommended at a board meeting on Tuesday that the system oppose Assembly Bill 2833 that addresses private equity fee reporting, according to a report from the pension plan.
AB 2833 aims to increase transparency regarding fees and expenses paid by public pension funds to alternative investment vehicles. Its proposals include compelling pensions to disclose that information at least once annually at a meeting open to the public. According to the bill, the requirements would apply to fund contracts entered into, amended or extended on or after January 1, 2017. The information required would include management fees, carried interest, expenses paid to the vehicle, the fund manager, or related parties, and the gross and net internal rate of return of each fund since inception.
While pension plans have been in favour of more transparency in the reporting of private equity fees and expenses, they also fear that the way these new rules are written would increase costs and prompt some private equity fund managers to avoid collecting commitments from California pension plans.
“It is difficult for a public agency like LACERS which has a demonstrated track record in favour of transparency, to make a recommendation to oppose a bill with such a stated intent; however the bill, as written, could pose significant harm to LACERS, other California public pension systems, and their respective jurisdictions,” Jimmy Wang, an investment officer in LACERS's investment division wrote in the report.
LACERS, which supports the Institutional Limited Partners Association's fee reporting template, noted that the passage of this law would most likely increase the number of private equity firms that exclude California pension plans from investing in their funds as GPs would be required to disclose proprietary information.
“A further restriction in the private equity funds that public pension plans may be able to invest in is a problem when assumed investment earning assumptions are declining and private equity investments have comparatively been a consistently well-returning asset class,” LACERS added.
The California Public Employees' Retirement System supports the AB 2833 in principle but suggested several modifications, while the Los Angeles Fire and Police Pensions is opposing the bill in its current form, and the California State Teachers' Retirement System plans to discuss the matter at its June board meeting.
AB 2833 is still a proposal at this point and could be modified to address some of the pensions' concerns.