CalPERS board voted Wednesday to sponsor a bill in the state legislature to keep some information about its private debt investments private — without seeing a draft of the proposed legislation.
The idea of sponsoring such a bill was first revealed publicly at the pension plan's first-ever stakeholders' forum Jan. 22 in Sacramento. The bill proposal, as set forth in a staff memorandum, would allow the $401.4 billion California Public Employees Retirement System, Sacramento, to keep certain private debt investment information secret: proprietary due diligence information; information proprietary to the borrowers; and details about potential collateral.
However, CalPERS staff does not yet have an author for the bill and the ultimate bill could change.
"We would be the sponsors, I mean, obviously, the authors of the bills can do whatever they want once we get an author," Danny Brown, CalPERS chief of the legislative affairs division, told the board in response to a question from board member Jason Perez. "But technically as the sponsor, they will, you know, listen to us and kind of give us a lot of latitude on that area. But no, we don't have complete control over what the author wants to do."
This is not the first state law sponsored by CalPERS to keep alternative investment information confidential. CalPERS and the $108.8 billion University of California board of regents in 2006 successfully sponsored California legislation that allows the state's pension plans to keep certain information concerning their alternative investments private. An alternative investment in the earlier bill consists of an investment in a private equity fund, venture fund, hedge fund or absolute return fund. That bill was the result of the settlement of a lawsuit to compel the two asset owners to release information regarding their alternative investments. The legislation lists information that is not disclosable to the public.
Mr. Brown told the board that a new bill is needed because private debt was not covered because private debt was not a market when the earlier legislation was proposed. Further, unlike the earlier bill the private debt proposal would allow CalPERS to protect information that staff has access to and uses to underwrite in-house investments.
However, the law passed a decade ago allows CalPERS and the two other large state asset owners to keep secret "Due diligence materials that are proprietary to the public investment fund or the alternative investment vehicle"
Other information that can be kept secret under the older bill includes quarterly and annual financial statements of alternative investment vehicles, portfolio position information, capital call and distribution notices, and alternative investment agreements.
The private debt bill proposal states that external private debt managers would be subject to two 2016 state laws that require the state's three largest asset owners — CalPERS, $254.1 billion California State Teachers' Retirement System, West Sacramento, and UC board of regents — to annually release information related to the fee and costs paid to alternative investment vehicles as well as the dollar amount, on a fiscal year-end basis, of cash distributions and net internal rate of return and the investment multiple of each alternative investment vehicle since inception.
Under CalPERS' private debt bill proposal, some information concerning its private debt investment would be available upon a public records request: the name and address of the borrower, the dollar amount of the loan, the investment return on the loan and any undrawn loan commitments.
Upon questioning by board member Lisa Middleton, Katherine H. "Kit" Crocker, CalPERS' investment director, investment compliance and operational risk, said staff had not contemplated whether the terms of loan repayments would be made public.
Several board members said that they would have preferred to have seen a copy of the bill before voting to sponsor it. Staff was directed to provide a copy of any future bills staff would like the pension plan to sponsor.
Mr. Brown told the board that staff had draft language that is in "mock-up form" but that the board needed to vote on the proposal without seeing the draft language because the due date for filing new California bills is Friday. But he said the bill would take a long time to go through the legislative process and CalPERS board could always pull the bill. However, when Mr. Perez questioned whether the board had that kind of authority, Mr. Brown acknowledged that it would be up to the bill's authors.
"I have concerns when we start messing with the California public records act. I think it's a slippery slope and it makes us less transparent, not more transparent," said Margaret Brown, the sole board member who voted against sponsoring the bill. "And, Mr. Brown, I heard you talk about trade secrets, and I know that in private equity, they call everything a trade secret, their contract is a trade secret. I want us to be very, very careful that we don't expand the definition of what needs to remain private or hidden, that we don't disclose the contract or any other information that we should be able to see as a part of the public records."
Separately, the board Wednesday approved a committee proposal to extend for two years Barra LLC's contract for the investment office's risk platform. The contract expires in November, according to a staff memo to CalPERS' finance anad administration committee, which met Tuesday. Staff asked for the contract extension to give it time to determine how the data strategy and CalPERS' multiasset trading platform initiative would affect and connect to the risk system before CalPERS officials make a long-term decision on the risk system.
Also, Marcie Frost said that CalPERS' governance committee would be asked in March to consider whether to publish the cost of board travel and to conduct an overview of board travel. Staff will also provide a report at a future board meeting on the investment office initiatives to increase diversity. CalPERS' annual diversity and inclusion report provided to the finance and administration committee Tuesday shows that 43% of CalPERS' workforce is white, 23% Asian, 16% Hispanic, 9% black, 4% Filipino and the rest other or unknown. Some 58% of CalPERS employees are female, with women making up 40% of executive level and 42% senior leader level employees. Some 58% of CalPERS' rank and file employees are female. Some 62.4% of CalPERS' senior leaders are white. Of the investment office's 330 employees, 45% are female and 55% are male, and 51.5% are white, 24.8% Asian and 11.8% Hispanic.
All of CalPERS' board services unit, 67% of its communications and stakeholders staff and 67% of its customer service and support services staff are female.
