SACRAMENTO, Calif. CalPERS threat to end its future investments in private equity might be overstated.
A bill under consideration in the California Assembly would ban the $237.5 billion California Public Employees Retirement System and the $166.5 billion California State Teachers Retirement System, both of Sacramento, from future investments in private equity funds and companies partially or wholly owned by certain sovereign wealth funds.
The bill, which is backed by the Service Employees International Union CTW CLC, Washington, targets sovereign wealth funds whose sponsoring countries do not adhere to certain human rights treaties. Officials at both California pension funds said it will be difficult to invest in top-tier private equity investments if the bill passes.
CalPERS staff said the bill would scare off already-jittery general partners who fear that taking on the fund as a limited partner will subject them to undue political pressure, according to a staff memo to the funds investment committee. Staff went as far as to suggest they would stop investing in private equity entirely if the bill passes and prevents them from getting into top-tier funds.
But that threat might be exaggerated. I dont think its a real option, said Rob Feckner, president of the CalPERS Board of Administration, in an interview. But it is an option.
CalPERS and CalSTRS officials plan to negotiate with Assemblyman Alberto Torrico to make changes in the bill he sponsored. CalPERS investment committee on March 17 postponed taking a formal position on the bill; the CalSTRS board on March 6 had voted to oppose the proposed legislation.
I am willing to listen to both CalPERS and CalSTRS to discuss the bill and see if we can tighten up the language in certain places to address some of their concerns, said Mr. Torrico, in an e-mail response to an inquiry from Pensions & Investments.
But Mr. Feckner is not sure an adequate compromise will be struck. Im not confident there will be enough amendments to protect us, Mr. Feckner said.