California’s PE fee disclosure bill passes into law

A bill imposing more requirements on California-based public pensions to disclose private equity-related fees and expenses has been passed into law.

The bill, AB-2833 Public Retirement Alternative Investments Disclosure, passed unanimously in the state assembly, 80-zero, on 24 August, according to the California legislation website.

Citing parts of the California Constitution that call for retirement boards to demonstrate fiduciary responsibility, the bill mandates the “public pension or retirement system to require private equity fund managers, partnerships, portfolio companies, and affiliates to make specified disclosures regarding fees and expenses in connection with limited partner agreements on a form prescribed by the system.” That information would then be disclosed at least once a year at a public meeting.

Private equity-related fees has been a notable issue for pensions including the California Public Employees’ Retirement System (CalPERS), the US’s largest public fund. In August, CalPERS rejected the proposed restructuring of energy-focused private equity manager First Reserve’s Fund XI, citing the $500 million in fees the firm had already received on the fund as well as its poor performance.

This bill applies to new contracts for partnerships in alternative investment vehicles entered into on or after 1 January 2017, and to existing contracts with new capital commitment made on or after that date. It also suggests the pensions make “reasonable efforts” to have similar information on fees and expenses for contracts and commitments made before that date.

In May, two California pensions expressed their reactions to the bill. CalPERS suggested four changes to the bill, concerning the 1 January 2017 date, the definition of “related parties” in the bill, the consolidation of carried interest with fees and expenses in the bill, and calculation of data, as reported by sister publication Private Equity International.

Using an online tool on the California state legislation website to compare different versions of the bill, PEI found no evidence to indicate that CalPERS’ requested changes were made in the bill that passed. CalPERS was not available to comment at press time.

Later that month, the Los Angeles City Employees’ Retirement System (LACERS) recommended that the system oppose the bill, saying the bill could pose “significant harm to LACERS” because private equity firms might exclude California pensions from investing in their funds, as reported by PEI.

The bill was enacted on 25 August, according to the California legislation website.