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In many ways, Winston Churchill’s aphorism about America applies to the giant public pension fund CalPERS:
You can always count on Americans to do the right thing – after they’ve tried everything else.
CalPERS was called out by quite a few mainstream media outlets after we broke the story that it was not tracking one of the largest payments that private equity general parters take from the assets of private equity funds, that of the profits interest widely mislabeled as “carry fees,” In response to the uproar, CalPERS made a 180 degree turn and set about to get the information for all the funds in the entire history of its investment in private equity. By contrast, its Sacramento sister CalSTRS is trying to hold on to the increasingly untenable position that it needs to study what to do about its carry fee information gap, even after CalPERS has clearly demonstrated that all an investor needs to do is ask for the desired data.
At the beginning of this week, CalPERS and CalSTRS board member and state treasurer John Chiang sent a letter to the chairmen of the Investment Committees of both giant pension funds. He asked for their support in getting their boards to direct staff to develop legislation to increase disclosure of fees and related party transactions in private equity. CalPERS said within days that it was backing Chiang’s initiative. From Private Equity International, in a paywalled story, CalPERS applauds state treasurer appeal:
The California pension fund responds to a letter sent to it by State Treasurer John Chiang calling for legislation on fee disclosure.
In response to a letter sent by California State Treasurer John Chiang to both the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS) calling for greater private equity fee transparency, CalPERS said that it “applauded” Chiang for seeking greater disclosure.
In a statement sent to Private Equity International, CalPERS said it had “long fought for greater disclosure and transparency in the private equity industry.”
So where is CalSTRS? Even though CalPERS is taking a commendable step in terms of substance, one can also correctly point out that the CalPERS action is nevertheless highly irregular from a governance perspective. Staff is abrogating the role of the board in settling policy on legislation. And this is consistent with a pattern that we’ve documented at CalPERS, that of staff riding roughshod over the board, treating it as if its role is simply to rubber stamp staff decisions. So it is not unreasonable to expect an institution that has a board that is functioning properly to need to put this Chiang’s proposal on its agenda for its next board meeting so it can deliberate properly before coming to a decision.
However, given CalSTRS’ recalcitrance on transparency, I would not trust it to do the right thing. I therefore encourage readers who live in California to write or call Betty Yee, the California controller who also sits on CalPERS and CalSTRS boards, and tell her you trust she will press CalSTRS to follow CalPERS’ example. Her contact details are:
Ms. Betty Yee
California State Controller
P.O. Box 942850
Sacramento, California 94250-5872
Please also urge all California teachers you know to write or call both Yee and the CalSTRS’ board chairman, Harry Keiley.
Mobile Phone: (310) 428 3624
Please use Keiley’s e-mail if at all possible; call his mobile only if you fail to get a response after two e-mail attempts.
Tell him you agree with the position of the American Federation of Teachers, which has called for full transparency for all investment fees and costs for private equity, and you therefore expect them to give their full support John Chiang’s proposed legislation.
Thanks again for your letters and calls. They’ve made a real difference, but it is important not to let up when efforts like this seem to be in the home stretch. So keep the pressure on!