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Portfolio > Alternative Investments > Hedge Funds

Lawsuit Asks: What Are CalPERS Managers' Fees?

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SAN FRANCISCO (–The California First Amendment Coalition has filed a lawsuit in state court asking that the US$166 billion California Public Employees’ Retirement System be ordered to disclose the management and advisory fees it pays to private equity and hedge fund managers.

The CFAC, a nonprofit corporation, began laying the groundwork for this lawsuit in May when its Executive Director, Peter E. Scheer, wrote CalPERS’ Chief Investment Officer Mark Anson demanding the information under the state’s Public Records Act.

CalPERS’ Assistant Chief Counsel Patricia Bergess replied on the agency’s behalf June 14, saying CalPERS would not make available to the public the dollar amounts of such costs charged by individual hedge funds or private equity investment funds. She asserted that the requested information is exempt from the Public Records Act under provisions allowing for a trade secret privilege, an official information privilege and a “balancing test” where, in particular circumstances, the public interest served by withholding data outweighs that served by revealing it.

CalPERS officials contend that the public interest is served by the careful discharge of its fiduciary responsibilities to pensioners, and this in turn is served by its ability to negotiate with fund managers who may desire information such as advisory fees they collect withheld.

The CFAC, which is represented in this matter by Levy, Ram & Olson LLP, San Francisco, has filed a lawsuit, formally known as a petition for writ of mandate. It maintains that CalPERS’ balancing of the interests for and against disclosure of funds is incorrect.

“While the funds may prefer to hide from public view the significant fees paid to the funds, their private preference cannot override the contrary mandate of the Public Records Act.”

The petition cited to this effect a precedent arising from a lawsuit brought in 1983 by the San Gabriel Tribune.

CalPERS announced in June 2003 target allocations to hedge funds of between 2% to 4% of its assets under management. Given its present size, that would amount to between US$3.2 billion and US$6.4 billion.

In a statement, Mr. Anson said, “CalPERS has an outstanding record of transparency in investment matters and specifically private equity investments.” He expressed concern that if the CFAC prevails and CalPERS must disclose advisory fee information, it may “be forced to withdraw prematurely from funds” to the detriment of pensioners, and it will be locked out of the top-tier investment opportunities going forward.

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Contact Bob Keane with questions or comments at: [email protected].


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