FOR RELEASE 11:00 AM TUESDAY, DEC.7, 2004
CALPERS SETTLES SUIT FILED BY CFAC. PENSION FUND FOR FIRST TIME DISCLOSES FEES AND PROFITS ON “PRIVATE EQUITY” INVESTMENTS
The California Public Employees’ Retirement System (CalPERS) publicly disclosed Monday, for the first time, the management fees it pays to individual venture capital, hedge, and other private equity funds in which CalPERS invests. The disclosure was hailed as a major victory for open government by the California First Amendment Coalition (CFAC), which had sued CalPERS to get the documents.
The documents reveal millions of dollars in management fees paid to venture funds which, according to press reports, are affiliated with individuals who made campaign contributions to CalPERS board members.
The information disclosed by CalPERS covers the period 2001 through 2003. CalPERS also agreed to disclose management fee information for 2004 and 2005 as part of a settlement of the lawsuit brought by CFAC.
The documents show that CalPERS, the nation’s largest public pension fund, pays just over $200 million per year in management fees to 416 private equity funds in which CalPERS has already invested $13.5 billion, and to which it has committed to invest $21.1 billion. The documents, for the first time, show which firms received the hefty management fees, and how much they received.
In 2003, the last year for which information is available, the biggest fee, $8.1 million, was paid to Lombard/Pacific Partners, in which CalPERS has invested $347 million since 1995. Twelve private equity funds were paid management fees of over $3 million a piece in 2003
Among the fee recipients are three funds of Yucaipa Companies. According to several press reports, the funds’ head, Ron Burkle, has made political campaign contributions to State Treasurer Phil Angelides, who sits on CalPERS’ board. Another board member, former San Francisco mayor Willie Brown, has done work for Burkle, according to press reports. The CalPERS documents show the Yucaipa funds were paid $8.7 million in management feesin 2003, or 17.3% of capital invested. Two of the three Yucaipa funds have
negative rates of return.
Other CalPERS funds with political connections to members of the CalPERS board are New Mountain Partners, which was paid a management fee of $1.4 million in 2003, and Reliant Equity Partners, which was paid a management fee of $1.1 million. According to press reports, New Mountain’s founder, Steve Klinsky, has contributed to Angelides’ campaign. An adviser to one of New Mountain’s managing partners helped raise money for Angelides and also contributed to the campaign of state Controller Steve Westly, another member of CalPERS’ board, according to press reports.
CalPERS Monday also disclosed – for the first time – documents showing its profits, on a fund-by-fund, year-by-year basis, dating back to 1999, from its venture capital investments. CalPERS previously had disclosed only cumulative profits in private equity funds.
Using the newly disclosed information, one can estimate the value of the venture capital funds’ share of CalPERS’ realized profits. In general, they are 25% of CalPERS’ profits (corresponding to an average “carried interest” of approximately 20%). On this basis, the funds’ share of CalPERS’ realized profits totaled approximately $770 million from 1999 through 2003.
In connection with the settlement, CalPERS revealed that, with few exceptions, it does not have records showing the actual profits that venture capital firms have paid themselves from profits attributable to CalPERS’ profits. A sworn declaration to that effect was incorporated into the parties’ settlement agreement.
“These disclosures are a big step toward more openness and greater public understanding of how the nation’s largest public pension fund invests its money,” said CFAC Executive Director Peter Scheer, who originally requested the records in May. After CalPERS initially refused to disclose the information, CFAC filed a lawsuit under the California Public Records Act in September.
“This is a victory for the public’s right to know, and another move toward transparency in the venture capital industry,” said Karl Olson, a San Francisco lawyer who was lead counsel for CFAC in the case. CFAC was represented in the lawsuit by Olson and Erica L. Craven of Levy, Ram & Olson in San Francisco, and Judy Alexander of Winn & Alexander in Capitola. The same attorneys had also successfully sued CalPERS in 2002 to obtain venture capital performance information, and also won court rulings in 2003 against
the University of California forcing UC to disclose venture capital rates of return.
CFAC is a nonprofit, public interest organization based in San Rafael, CA. Founded in 1988, CFAC is an advocate for First Amendment and open government rights. CFAC’s members include California newspapers and other news organizations, as well as individual members: academics, government officials, freelance journalists, and community activists. CFAC, shortly after passage of Prop 59, requested Governor Arnold Schwarzenegger to disclose his calendar of meetings and appointments. The Governor has said he will comply with the request.
To view the data disclosed by CalPERS to CFAC, go to CFAC’s web site: www.cfac.org
Also available on the CFAC web site: the settlement agreement, all legal pleadings, the public record requests, performance data on CalPERS private equity funds, and selected articles.
Note: Unless indicated otherwise, all statements in this press release may be attributed to Peter Scheer, CFAC Executive Director.
FOR INFORMATION CALL:
PETER SCHEER (415) 460-5060 or (415) 505-5024 (cell)
KARL OLSON (415) 433-4949
JUDY ALEXANDER (831) 479-3490