NYTimes: Calpers Paid $3.4 Billion to Private Equity Firms

For years, state pension funds have invested money earned by teachers, firefighters and other government employees with private equity firms without having a full picture of how much they were earning and what they were paying in expenses.

On Tuesday, the California Public Employees’ Retirement System disclosed for the first time that it had paid $3.4 billion since 1990 to the biggest private equity managers on Wall Street, including like firms like Carlyle, Blackstone and Apollo. Calpers also said it had made $24.2 billion in profits from private equity firms over the same period, according to its new data-collecting program, called Private Equity Accounting and Reporting.

The move by Calpers, the country’s biggest state pension fund, to disclose the details of its investment profit — called carried interest — could help to pave the way to more transparency in the private equity industry, historically one of the most secretive corners of the financial world.

“Private equity is a complicated asset class and the board and investment office staff will now have even more insight into our program,” Henry Jones, Calpers’s board vice president and the chairman of its investment committee, said in a statement on Tuesday.

Read the full story here.

Pensions’ Private-Equity Mystery: The Full Cost

Public pensions are owning up to a painful truth about their private-equity bets: They never totaled the bill.

For years, officials who oversee retirements for teachers, firefighters and other government workers said they failed to either ask or disclose how much private-equity firms kept in performance fees, the biggest source of profits for outside money managers.

Now, pension funds from New York to California are doing those calculations and revealing much bigger sums than they had ever made public. The size of the expenses could mean tougher scrutiny of private-equity investments and more pressure to cut back those holdings or negotiate lower fees.

The California Public Employees’ Retirement System is expected to announce this week that it paid private-equity firms billions of dollars more over the past 17 years than it had previously disclosed, according to people familiar with the situation.

Similar assessments made public recently by retirement systems in New Mexico, South Carolina, Kentucky and New Jersey showed total costs were as much as 100% higher than originally disclosed.

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Calpers’ Private-Equity Fees: $3.4 Billion

The nation’s largest pension fund by assets said it has paid $3.4 billion in performance fees to private-equity managers since 1990, providing the most significant disclosure yet in a debate at retirement plans over whether Wall Street is worth the price of admission.

The California Public Employees’ Retirement System, known as Calpers, disclosed the performance-related expenses for the first time Tuesday. Calpers said those performance fees were based on profits of $24.2 billion earned in hundreds of private-equity funds over the past 17 years.

“We have been rewarded for the risk we took in the [private-equity] program, and the costs we incurred,” said Ted Eliopoulos, Calpers’ investment chief, in a conference call with reporters.

Read the full story here.

Two UBS Advisory Firms Settle Charges Arising From Failure to Disclose Change in Investment Strategy

Settlement Will Return More Than $13 Million to Harmed Investors

FOR IMMEDIATE RELEASE 2015-241
Washington D.C., Oct. 19, 2015 — The Securities and Exchange Commission today announced that two UBS advisory firms have agreed to settle charges arising from their roles in failing to disclose a change in investment strategy by UBS Willow Fund LLC, a closed-end fund they advised.

UBS Willow Management LLC and UBS Fund Advisor LLC agreed to pay a total of approximately $17.5 million, more than $13 million of which will be returned to harmed investors. 

Read the rest of the press release from the SEC here

 

U.S. Nudges Forward A 'Huge Game-Changer' For Responsible Investment

The language may seem mild, but the implications are immense. A U.S. Department of Labor (DOL) statement holds a key breakthrough for the future of responsible investment and sustainable markets.

In rescinding its 2008 bulletin on Economically Targeted Investments (ETIs) the DOL has just published an interpretive bulletin stating its intention is to clarify “that fiduciaries should appropriately consider factors that potentially influence risk and return.”

“Fiduciaries need not treat commercially reasonable investments as inherently suspect or in need of special scrutiny merely because they take into consideration environmental, social, or other such factors. When a fiduciary prudently concludes that such an investment is justified based solely on the economic merits of the investment, there is no need to evaluate collateral goals as tie-breakers” says a revised preamble to its 1994 guidance.

U.S. guidance is key for many global markets – like Japan, for example. In Europe, institutional investors have been leading in demanding non-financial information, which includes ESG material – from business. It has also become clear how important these issues are to the millenials – the future investors.

“This is a huge game changer for responsible investment in the United States, an exciting and welcome development ” says Fiona Reynolds, Managing Director of the Principles for Responsible Investment (PRI).

  A Volkswagen Financial Services AG advertisement sits on the side of a passenger tram in Braunschweig, Germany, on Thursday, Oct. 22, 2015. The towns that became synonymous with Volkswagen AG’s rise to the pinnacle of the auto industry are feeling the pinch of the diesel-emissions scandal, freezing spending on projects such as playgrounds amid the carmaker’s abrupt fall from grace. Photographer: Krisztian Bocsi/Bloomberg

A Volkswagen Financial Services AG advertisement sits on the side of a passenger tram in Braunschweig, Germany, on Thursday, Oct. 22, 2015. The towns that became synonymous with Volkswagen AG’s rise to the pinnacle of the auto industry are feeling the pinch of the diesel-emissions scandal, freezing spending on projects such as playgrounds amid the carmaker’s abrupt fall from grace. Photographer: Krisztian Bocsi/Bloomberg

Read full article by Dina Medland on Forbes.