Candid camera

A few months ago, George Roberts, one of the co-founders of Kohlberg Kravis Roberts, visited the Washington State Investment Board to provide an update on the firm.

During his presentation, Roberts declared “there is no more opportunity in distressed debt. To the extent folks have raised funds to go do that, people are going to have a very hard time getting that invested”.

The statement was strange coming from Roberts, considering that KKR had only a few months before formed a team to target distressed debt, bankruptcy loans and rescue financing.

A follow-up call to a KKR spokesperson revealed that Roberts was talking about “buying good companies [on the cheap] in distressed-for-control turnaround situations.

“The easy money is gone and now people will only make money through hard work and proprietary sourcing, creative structures and the ability to improve what they invest in,” the spokesperson said, further expanding upon Roberts’ statement.


This situation is an example of something general partners often run up against when dealing with public pensions, where transparency rules make public much of what is said and presented at the meetings.

And public pensions in the US appear to be becoming more open than ever, which will ensure that anything a GP says, especially big, headline-grabbing shops like KKR, gets widely dispersed.

The Teachers’ Retirement System of Texas, a $94 billion pension, has started webcasting its board meetings as it attempts to increase “transparency” over how it invests capital.

The pension said the pilot programme of live and on-demand webcasting was intended to “increase transparency and provide easy ways for the media and general public to stay abreast of important pension fund news”.

David Kelly, TRS board chairman, said in a statement the pension wanted retirees to hear directly about the “decisions we make here in Austin on their behalf. Webcasting technology provides that front row seat, no matter where our members live in Texas or for that matter, the world”.

The $138.6 billion California State Teachers’ Retirement System agreed in 2009 to stream the audio of its board meetings over the internet. The $110 billion Florida State Board of Administration also provides live webcasts of its meeting, as does the San Diego County Employees Retirement Association. Some other pensions that do not provide live broadcasting meetings will make audio CDs available upon request. The Washington State Investment Board and the Oregon Investment Council are in this category.

Every state determines just how open they will be with the public in regards to their pension meetings. Some states will not even discuss them, let alone provide audio recordings. In these cases, the only way to access information about what was said is to wait for the meeting minutes to be published. The time frame for this can vary from a few days to a matter of months. When they are published, the level of detail can range from brief summaries of what was discussed to detailed transcripts and meeting materials, such as documents about fund commitments up for consideration.

In the wake of pension pay-to-play scandals and the financial downturn that hammered pensions’ private equity portfolio, the big institutions’ answer has been to open the windows and let the public see more of what goes on inside.

All this openness means GPs need to be – at the very least – aware they are being recorded and that members of the public, or the media, can call up their performances and listen to every word.

An interesting side-effect of this drive for transparency is the potential conflict it creates with Securities and Exchange Commission rules on private equity fundraising. “Regulation D” bars managers from soliciting commitments via an “advertisement, article, notice or other communication in the press”. How the SEC would feel about a GP pitching their next fund in a live internet broadcast has not yet been tested, but could prove a contentious issue.

Notwithstanding any future regulatory issues, the fact remains that GPs need to be mindful of what they say, even when addressing long-standing LPs. You never know who is listening.