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Portfolio > Alternative Investments > Hedge Funds

CalPERS Consents to Disclosure

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SACRAMENTO, Calif. (–Seeking to strike a balance between disclosure and access, the US$177 billion California Public Employees’ Retirement System reached a settlement with a First Amendment organization whereby the retirement fund will disclose profits earned and management fees and other costs paid to a host of hedge fund and private equity managers.

The settlement between CalPERS and the California First Amendment Coalition, founded and funded by California news organizations, marks a reversal for the giant pension fund. CalPERS had previously refused to disclose management fees, carried interest and profit splits that it negotiated with its hedge fund, private equity and venture capital managers for fear that doing so would result in the fund being shut out of similar partnerships in the future.

Under terms of the settlement, CalPERS will provide customized spreadsheets that show bottom-line profits, losses and expenses linked to each of its 300 private equity and hedge fund partnerships. CalPERS will not disclose fee structures or other detailed information.

“This innovative solution–to develop new documents with the bottom-line information–enables us to provide important information to the public and still protect, as prescribed under the exemption to state disclosure laws, the kind of information that absolutely must be shielded to meet the public interest in obtaining high rates of return from a diversified public pension asset pool,” said Peter Mixon, CalPERS’ general counsel, in a statement.

In a statement, the CFAC hailed the settlement as “a major victory for open government,” but spent little time gloating. Instead it delved into the data and reported that millions of dollars in fees had been paid to venture capital and private equity managers who had made political contributions to CalPERS board members, including State Treasurer Phil Angelides and State Controller Steve Westley.

CFAC officials also said documents obtained via the settlement show that venture capital funds were responsible for an estimated 25% of CalPERS’ realized profits from 1999 through 2003.

The documents, available on CalPERS’ website, also show that the pension fund paid US$2.6 million in fees and costs related to 12 hedge funds in 2002 and almost three times that amount, US$7.4 million, paid to 13 hedge funds in 2003.

Among those, Brookside Capital Partners Fund LP, the hedge fund run by Brookside Capital Management LLC, Boston, collected US$849,846 in fees and costs in 2003, the most in a single year of any hedge fund manager listed in either 2002 or 2003. CalPERS made an initial US$50 million investment in the Brookside fund in 2002.

But Brookside was paid only the third most in fees and costs over the entire two-year period spanning 2002 and 2003, according to the CalPERS documents. New York-based Atticus Capital Management Inc.’s Atticus Global LP fund collected US$2 million in fees and costs during that period, US$756,701 in 2003 and US$437,665 in 2002. Tosca, the long/short equity fund managed by ex-Tiger Management LLC portfolio managers Martin Hughes and Johnny De la Hey, collected the second most in fees and costs over the two-year period, US$1.16 million–US$750,000 in 2003 and US$380,889 in 2002–according to the documents.

“These disclosures are a big step toward more openness and greater public understanding of how the nation’s largest public pension fund invests its money,” said Peter Scheer, executive director of the CFAC, in a statement.

The California First Amendment Coalition had in May requested from CalPERS records of “management, advisory or other fees” paid by the pension fund to its alternative managers, including hedge fund managers. CalPERS denied the request, saying such information was exempt from disclosure under the state’s Public Records Act because it dealt with trade secret privileges and so-called official information privileges and because it failed to pass a “balancing test” for disclosure.

In response, the CFAC filed a lawsuit in state court in September challenging CalPERS’ denial. Then in October, while that lawsuit was pending, it filed a second request with CalPERS seeking information on gains and losses attributable to the various hedge funds, private equity and venture capital funds.

“This is a victory for the public’s right to know, and another move toward transparency in the venture capital industry,” said Karl Olsen of Levy, Ram & Olson LLP, the San Francisco law firm that represented the CFAC.

The settlement in California caught the attention of lawyers in Texas Attorney General Greg Abbott’s office. They are involved in a closely watched lawsuit with a private equity pool for public pension funds called the Texas Growth Fund and the Teacher Retirement System of Texas. The suit is based on Mr. Abbott’s ruling that investment performance, fees and other arrangements between public pension funds and private equity funds are a matter of public record.

The Texas Growth Fund and the US$72 billion Teacher Retirement System of Texas, based in Austin, argue that a move by the attorney general’s to force disclosure of such information would result in public pension funds being denied access to those kinds of funds because the fund managers consider the information to be trade secrets.

Tom Kelley, a spokesman in Mr. Abbott’s office, said the California case dealt with the same issues and called it an “apples to apples” comparison. He declined further comment, citing the ongoing litigation.

The California settlement likely is the first step in a long process to resolve what kind of private partnership investment information public pension funds can and should disclose.

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


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