California Pensions Must Disclose Fees Paid to Alternative Managers

Starting in 2017, public pension funds in California must disclose fees paid to private equity, hedge, venture and absolute return fund managers.

California Governor Jerry Brown signed AB 2833, sponsored by State Treasurer John Chiang, requiring public pension funds to disclose fees paid to private equity investment firms.

According to the bill, “for new contracts entered into on and after January 1, 2017, and for existing contracts for which a new capital commitment is made on or after January 1, 2017, would require a public investment fund, as defined, to require alternative investment vehicles, as defined, to make specified disclosures regarding fees, expenses, and carried interest in connection with these vehicles and the underlying investments, as well as other specified information.”

The bill defines “alternative investment” as an investment in a private equity fund, venture fund, hedge fund, or absolute return fund. “Alternative investment vehicle” is defined as the limited partnership, limited liability company, or similar legal structure through which a public investment fund invests in an alternative investment.

The disclosure requirements will apply to the California Public Employee Retirement System (CalPERS), the California Teachers Retirement System (CalSTRS), county and city retirement systems, the University of California Retirement System and all independent retirement systems.

“California taxpayers and pension beneficiaries will now get to go behind the curtain to view the previously hidden fees and charges paid to Wall Street firms,” said Chiang. “This is important because every dollar paid in fees is one less dollar available for promised pension benefits.”