New transparency requirements and a seller's market for private equity investments are putting California public pension funds at a disadvantage when seeking to invest.
CalSTRS and the Los Angeles Fire & Police Pension Plan are just two of the asset owners whose general partners have declined to accept their commitments, citing the state's new law. The law requires all public pension plans in the state to obtain information about private fund fees and expenses, and to make that information public.
"We've lost three opportunities," said Christopher J. Ailman, chief investment officer of the $222.5 billion California State Teachers' Retirement System, West Sacramento, in an interview.
The situation is being aggravated by the enormous amount of money chasing the asset class, as investors look to alternative investments to produce returns not expected to be delivered by traditional asset classes.
"We are in an environment where the very best funds can pick and choose their investors. And some of the best funds don't want to deal with additional reporting complexity or negotiation," said David Fann, New York-based co-founder, president and CEO of alternative investment consulting firm TorreyCove Capital Partners LLC.
California is not the only state that passed an alternative investment transparency bill.
Washington and, as of last year, Virginia also have transparency laws. Colorado took a baby step in the direction of transparency as part of a pension reform bill passed May 9.
The bill, which awaits the signature of Gov. John Wright Hickenlooper Jr., requires the $49 billion Colorado Public Employees' Retirement Association, Denver, to share details of its private equity and real estate investments with a new legislative oversight subcommittee unless confidentiality considerations prohibit the disclosure.