May 23, 2018

CalSTRS Discovers What “Private” Equity Means

This “Pensions & Investments” article says that CalSTRS can’t find any private equity funds that will take its money. This excerpt says the problem is California’s transparency legislation:

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.

California enacted legislation in 2016 mandating that California public investment funds disclose detailed information about the fees and expenses associated with investments in private equity, venture & hedge funds. At the time, some expressed concern about the impact the new disclosure requirements would have on California funds’ ability to access alternative investments. It appears that they had good reason to be worried.

John Jenkins