California Gov. Edmund G. “Jerry” Brown Jr. on Wednesday signed a bill requiring greater reporting by public pension funds in the state of alternative investment fees for commitments made on or after Jan. 1, 2017, according to a legislative update issued on Wednesday.
The bill requires public pension funds to “undertake reasonable efforts” to obtain and disclose the same information for existing alternative investment commitments made before that date.
“California taxpayers and pension beneficiaries will now get to go behind the curtain to view the previously hidden fees and charges paid to Wall Street firms,” state Treasurer John Chiang, who sponsored the bill, said in a written statement.
What was considered by some to be a watered down version of the bill passed the state Legislature last month.
Michael Flaherman, former board member of the $305.7 billion California Public Employees' Retirement System, Sacramento, pulled his support from the bill after it was “fatally weakened ... by removing the requirement for full disclosure of related-party transactions,” according to a June 26 letter of opposition he wrote to Richard Pan, chairman of the California Senate Committee on Public Employment and Retirement.
Some pension plan officials — including those at the $193.4 billion California State Teachers' Retirement System, West Sacramento, and the $19.5 billion Los Angeles Fire & Police Pension Plan — voiced concerns that too much disclosure could cause them to be shut out of alternative investment firms' offerings.
The bill requires all public pension funds in California to obtain from each alternative investment vehicle in which it invests to disclose the fees and expenses the pension plan pays to the investment vehicle, the fund manager or related parties. Each California pension plan also needs to procure its pro rata share of carried interest, and total fees and expenses paid by all of the fund's portfolio companies to the fund manager or related parties.