CalPERS Discloses Private Equity Fees

A watchdog group settled a lawsuit with the California Public Employees’ Retirement System on Tuesday, forcing the giant pension fund to disclose the fees it pays to have its money managed.

The settlement was hailed as a victory by open-government advocates and may give ammunition to critics who contend that CalPERS is fraught with conflicts of interest.

Fee details released Tuesday confirmed reports that CalPERS had made payments to partnerships whose principals have contributed to the political campaigns of two CalPERS board members: state Treasurer Phil Angelides and Controller Steve Westly.

CalPERS, a $177-billion fund, has made an international name for itself by demanding greater corporate responsibility and transparency from the companies in which it invests.

With the settlement, “the public is learning for the first time exactly what each fund is getting paid ... and whether CalPERS is getting a good return for its public dollar investments,” said Peter Scheer, executive director of the California First Amendment Coalition, which sued CalPERS in September.

Scheer added that politicians “in Angelides’ or Westly’s positions ought not to be taking campaign contributions from private equity funds in which CalPERS invests.”

In all, CalPERS paid more than $200 million in fees every year from 2001 to 2003 to 416 private equity funds, which partner with CalPERS to invest in nonpublic companies with the goal of reaping large profits by eventually selling the companies or taking them public. CalPERS has invested $13.5 billion in those funds and has committed to invest a total of $21.1 billion.

Fees paid for the management of high-risk investments tend to run slightly higher than those paid to put money into broader-based index funds that track general market movements. “You pay up for that class,” said Ann Yerger, acting executive director of the Council of Institutional Investors.

In 2003, $8.7 million in fees went to Yucaipa Cos., which runs three funds that do business with CalPERS. Yucaipa has given $27,902 to Angelides and $16,892 to Westly in monetary and in-kind contributions since 2001, according to records at the secretary of state’s office.

CalPERS spokeswoman Patricia Macht said Angelides voted along with the rest of the board to invest $285 million with Yucaipa in November 2001. Westly wasn’t a member of the board at the time of the vote.

Both Macht and Ron Burkle, head of Yucaipa, noted that Yucaipa was selected to manage CalPERS inner-city investment funds after its proposal had been vetted and recommended by an outside independent advisor and endorsed by CalPERS’ professional staff.

Angelides declined to be interviewed. A spokesman said in an e-mail that Angelides “casts his votes on investments based on the recommendations of CalPERS’ professional investment staff, with one guiding principle: All decisions must be made in the best interests of California’s taxpayers and pensioners.”

A spokesman for Westly said the controller “makes his CalPERS decisions based on the merits of the investment and nothing else.”

According to Tuesday’s disclosures, CalPERS’ biggest fee during 2003 went to Lombard/Pacific Partners of San Francisco, which has invested $347 million of the pension fund’s money since 1995. Twelve other firms, including the Yucaipa funds, got management fees of more than $3 million each that same year.

The California First Amendment Coalition had asked in its suit for the pension fund to reveal a host of provisions about its investments, including profit splits with partnerships. CalPERS argued that revealing so much could have a chilling effect on future deals.

CalPERS said it was able to reach a settlement with the coalition because the accord demanded that only fees, profits and losses for individual funds be made public.