Calpers Is Sued To Disclose Fees It Pays to Firms

By ANN GRIMES
Staff Reporter of THE WALL STREET JOURNAL
September 8, 2004;

A new round in the so-called transparency wars kicked off yesterday.

An open-government advocacy group filed a lawsuit against the California Public Employees' Retirement System asking that the pension fund disclose the management fees it is charged by private-equity firms that invest on its behalf.

The lawsuit, filed in Superior Court in San Francisco, follows a freedom-of-information request that the group filed in May, asking for the data. Calpers refused the request, citing confidentiality agreements, according to the suit.

"Calpers spends $500 million in management fees for alternative investments like venture-capital funds," says Peter Scheer, executive director of the California First Amendment Coalition, a nonprofit group that filed the suit. "That is a great deal of money by any measure." The pension fund's constituents, he maintains, "can't tell whether Calpers is getting a good deal, a bad deal, or whether they are paying too much."

The coalition argues in its suit that disclosure of fees would promote competition among private-equity firms.

Calpers spokeswoman Patricia Macht said the lawsuit "distorts Calpers record of transparency." She also said that if the suit is successful, it "might bring some sunshine to additional details of information already disclosed in the aggregate, but it is contrary to taxpayers' interest, because it will create a chilling effect on our ability to generate billions more in returns." She added that "many private-equity firms would walk away from public pension funds rather than give up proprietary information that would jeopardize their competitiveness in the marketplace."

Typically, venture-capital firms charge between 2% and 3% on capital under management, plus 20% to 30% in "carried interest," a profit that is returned to them when a private company in which they have invested is sold or goes public.

As a public pension fund, Calpers is subject to the state public-records act. In the past several years, a debate has raged within the private-equity industry over how much information is appropriate for firms to release. Private-equity firms include venture-capital firms, hedge funds and buyout firms.

Calpers previously had been sued by a Northern California newspaper and a coalition of employees unions seeking information on the performance of its private-equity investments. The pension fund settled that dispute out of court and now posts the performance data on its Web site each quarter.