Updated with correction
Measures in several states focusing on alternative investment fee disclosure are causing public pension plan executives to worry they could get shut out of the best funds if managers are unhappy with the requirements.
At least eight states have considered fee disclosure for alternative investments, according to the Washington-based National Conference of State Legislatures.
Two bills have passed, one in Washington and one in California, but neither requires as much information as the fee reporting template released by the Institutional Limited Partners Association in January.
The Illinois House is expected to see a bill in November that already passed the state Senate. Legislation also is pending in Louisiana and Rhode Island. Bills have failed in three states — Alabama, Kentucky and New Jersey, the NCSL data show.
The ILPA disclosure template details fees, expenses and carried interest. So far, 53 institutional investors have endorsed the trade association's form. And half of that group now requires their general partners to use it.
But some pension plan officials have opposed disclosure legislation, fearing that alternative investment firms will shut them out of their investment offerings if firm executives don't care to provide more information.
Illinois is considered to have one of the strongest transparency bills under consideration. It would require full disclosure on fees, including management fee waivers and clawbacks of fees due to limited partners. In May, the bill was amended to resolve problems voiced by state pension fund executives, said Illinois state Sen. Daniel Biss, a Democrat who sponsored the bill.
“I believe that the situation is untenable. It is unsustainable for pension funds to not know the fees they are paying,” Mr. Biss said in an interview.
Under the amended legislation, which incorporates portions of the ILPA template, reporting requirements would not kick in until 2019. In the meantime, the Legislature will create a task force with state pension funds holding the most seats. If the task force comes up with a better proposal, that could become a new law.
“It's giving them (the pension funds) a very significant shot,” he said. ”If the pension plans don't like this bill, (this gives them a way) to find a more palatable mechanism of achieving the same goal.”
If legislators decide the task force's approach is inadequate, the current requirements of the bill will become law, he explained.