CalPERS said last week, in a long-awaited disclosure, that it had paid $3.4 billion in carried interest performance fees to private equity managers since 1990 but had received $24.4 billion in net gains during that period.
For the fiscal year ended June 30, the $291.4 billion pension fund said it had paid $700 million in carried interest to private equity firms, while earning $4.1 billion.
That disclosure comes almost a week after the New Jersey State Investment Council, which oversees the policies governing the $79 billion New Jersey Pension Fund, decided to report a five-year history of fees and performance data for the pension fund's investments.
The New Jersey council voted unanimously Nov. 18 to approve the fee review, which will be prepared by the Division of Investment, a unit of the state Treasury Department. The division manages investments for the pension fund.
Although no timetable has been set for reporting the New Jersey data, Brendan Thomas Byrne Jr., chairman of the investment council, said: “We want to do it as fast as we can.”
The California Public Employees' Retirement System, Sacramento, had been unable to track carried interest data until recent enhancements to its computer system. The lack of disclosure had led to criticism that the pension fund had no idea how much it was paying private equity managers.
CalPERS reported private equity returns for the latest fiscal year of 8.9% net of fees, compared to 1% for its public equity portfolio. CalPERS has $28.9 billion in private equity assets.
“Private equity has the highest net returns in our portfolio,” Chief Investment Officer Theodore Elio-pou-los said in a statement. “As a long-term investor, it is an important piece of our investment strategy and our mission to provide pension benefits for generations to come.”
Few public pension funds track carried interest data, and the CalPERS disclosure is expected to push other pension systems to make such disclosures.
The disclosure issue has became a flashpoint for a national debate over the amount of fees paid to private equity managers, given the risks and illiquidity of the investments.
One critic, Michael Flaherman, a visiting scholar at the Center on Governing & Investing in the Future at the University of California, Berkeley, said in an interview that the fees CalPERS and other pension funds are paying are too much.
“It's hard to understand why you need to pay billions of dollars to a small number of individuals at private equity firms to get out of bed,” Mr. Flaherman said.
He said the released data do not include other fees, such as portfolio monitoring fees, that private equity general partners charge.
California Treasurer John Chiang said in a statement that while he applauded CalPERS for releasing the data, it is not enough.
“(T)oo much compensation information remains missing, and no amount of profit-sharing returns should cause us to turn a blind eye to demanding full transparency and accountability from firms which call themselves our "partners,'” Mr. Chiang said. “With any other investment class, it would be a no-brainer to demand full disclosure of all fees and costs.”
The Private Equity Growth Capital Council sees CalPERS' move as a positive.
“The data released by CalPERS today shows the success of its private equity program, and is excellent news for California's public employees, pensioners and the state budget,” spokesman James Maloney said in a statement. “It also highlights the strong partnership between private equity and pensions; a partnership based on an alignment of each party's interest.”