We reveal the private equity/hedge fund profits that the California Public Employees' Retirement System (CalPERS) was forced to disclose this week.
The disclosure follows an innovative settlement in litigation brought by the California First Amendment Coalition (CFAC) over release of CalPERS' private equity and hedge fund investment records.
CalPERS is the largest public pension fund in the USA with assets of more than USD 177 billion. The System provides retirement and health benefits to more than 1.4 million State and local public agency members and their families.
CalPERS has committed USD 21.1 billion in private equity and committed USD 2 billion in hedge funds. It has generated profits in excess of USD 6 billion since 1990 in its private equity program, and in 2003 paid management fees and costs of USD 202 million to private equity fund managers. The average private equity fund in which CalPERS invests is 3.9 years old, and in most cases it remains too early to tell how well the investments will do, because most have a 10-year lifespan.
Under terms of the settlement reached by CalPERS and CFAC, the pension fund has developed new "custom spreadsheets" that show the amounts of CalPERS annual profits received from and expenses paid to its 300 private equity and hedge fund partnerships.
As part of the settlement, CFAC agreed to withdraw its broad original requests.
Peter Mixon, General Counsel for CalPERS, said: "This innovative solution - to develop new documents with the bottom line information - enables us to provide important information to the public and still protect, as prescribed under the exemption to state disclosure laws, the kind of information that absolutely must be shielded to meet the public interest in obtaining high rates of return from a diversified public pension asset pool."
The case was filed by CFAC on 2 September 2004 after CalPERS rejected initial requests because disclosure of the documents requested would have created a host of problems. As a "limited partner" investor in the private equity and hedge fund market, CalPERS negotiates fees, carried interest, and profit splits with partnerships. If all of the terms and conditions were disclosed, CalPERS would likely be shut out of top-tier investment funds and would be put in an unfavorable position when negotiating terms of a deal, said Mark Anson, CalPERS Chief Investment Officer.
It would have also forced CalPERS to withdraw prematurely from other funds and lose money, lose its advantage in negotiating favorable terms, and be refused the kind of detailed information necessary to evaluate the funds' performance.
"The disclosure of this information strikes the appropriate balance between the public's right to access information and the continuing ability of CalPERS to invest in these asset classes, which generate long-term returns to pay benefits," Mixon added.
The settlement has provided the dollar amount of gain/profit that CalPERS received from each fund for calendar years 1999-2003. Data for 2004-05 will be released in the future. Additionally, CalPERS disclosed management fees and other costs, expressed in dollars, paid by CalPERS to the funds for each calendar year between 2001-2003. Data for 2004-05 will be released in the future.
A copy of the gains made on private equity and hedge fund partnerships between 1999-2003 is available at www.hedgemedia.com/hwreports.asp