Calpers needs to get a clue

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The state treasurer of California wants answers from Calpers, and Calpers wants answers from its managers.

Calpers, the largest public pension in the U.S., has no idea how much it has paid in “carried interest” to its private equity managers over the last 25 years, reports the Financial Times. Needless to say, that’s a problem for John Chiang, California state treasurer. Private equity managers have been inconsistent in their reports of carried interest payments, complicating matters for Calpers, which uses more than 100 private equity firms for its $30.5 billion private equity portfolio. The pension has said it plans to cut its private equity managers by more than two-thirds. Writes the FT:

Professor Ludovic Phalippou, a finance professor at the University of Oxford Saïd Business School, who specialises in private equity, said: “Calpers’ total bill is likely to be astronomical. People will choke when they see the true number.”

Calpers first admitted in 2011 that it needed to better track fees and carried interest, but has taken the last four years to create a new reporting system. After asking all of its private equity managers for data on carried interest payments since the beginning of their Calpers contracts, Calpers has had six managers decline to give any data for the current year. If a pension as big as Calpers has issues getting accurate information from its managers, then smaller funds must be totally blind, says Phalippou. “Private equity managers know what they charge and there is no reason for them not to disclose [this] to their investors,” he says.

U.S. regulators have been targeting private equity managers recently for overcharging investors. Less than half of private equity costs for U.S. pensions are being disclosed, one consultant says. Private equity managers say no way. Pensions sign disclosures and are given quarterly reports and annual financial statements, they say. Writes the FT:

David Neal, managing director of the Future Fund, Australia’s A$128 billion sovereign wealth fund and one of the world’s largest investors in private equity, said: “There just are not enough decent private equity managers around to justify the fees. Calpers was right; the fees are just too high to warrant having 300 firms.”

Photo: Wikipedia.