The California Superior Court suit by the California First Amendment Coalition followed an unsuccessful Freedom of Information Act request filed with CalPERS in May, the Wall Street Journal reported. The coalition is seeking disclosure of how much CalPERS pays in management fees to private-equity managers who invest on its behalf.
The coalition argued in its suit that the fee disclosure would promote competition among private-equity firms and that outsiders needed the data to be able to judge CalPERS’ performance. “CalPERS spends $500 million in management fees for alternative investments like venture-capital funds,” said Peter Scheer, coalition executive director, in a news release. “That is a great deal of money by any measure.” The pension fund’s constituents, he asserted, “can’t tell whether CalPERS is getting a good deal, a bad deal, or whether they are paying too much.”
However, in a statement issued Wednesday, CalPERS CIO Mark Anson, contended that such disclosure would hurt the fund’s ability to generate the largest investment returns for its members.
“State law protects disclosure of information that is critical to protecting our ability to generate returns for the pension fund so that taxpayers won’t have to pay higher contributions toward public employee pensions, ” Anson said. “As a buyer on the private equity market, CalPERS must negotiate terms and conditions with private equity partnerships in order to participate. If this information is publicly disclosed, we believe CalPERS will be shut out of top-tier investment funds. In addition, CalPERS may be forced to withdraw prematurely from funds. CalPERS also may not be able to negotiate favorable terms if this information is disclosed. Finally, disclosure may result in existing funds refusing to provide the information that is required to effectively evaluate performance of these funds.
Typically, venture-capital firms charge between 2% and 3% on capital under management, plus 20% to 30% in “carried interest,” a profit that is returned to them when a private company in which they have invested is sold or goes public.
The coalition lawsuit is a continuation of a debate in the private-equity industry over how much information is appropriate for firms to release. CalPERS has been sued by a California newspaper and a coalition of employees unions seeking information on the performance of its private-equity investments (See CalPERS Starts Quarterly Private Equity Data Release Schedule ). The pension fund settled that dispute and now posts the performance data on its Web site each quarter.