SACRAMENTO: California Public Employees' Retirement System, disclosure, private equity performance bonuses/"carried interest": "CalPERS' private equity investing fees are expected to be 'ginormous'" ....
* Los Angeles Times: "CalPERS' private equity investing fees are expected to be 'ginormous'" - From the LAT:
CallPERS is finally about to reveal how much it really pays Wall Street for its most rarefied services — and taxpayers can expect a dose of sticker shock.
Last month, the California Public Employees' Retirement System announced with some fanfare that it would disclose the full amount it pays for private equity investing, the high-stakes, high-reward business of buying and selling whole companies dominated by massive global players such as Carlyle Group, Kohlberg Kravis & Roberts and Blackstone Group.
At issue are the performance bonuses, known as carried interest, which for decades have been collected by Wall Street giants as part of their compensation, but have not been disclosed by pension funds to the public. Typically, the bonuses are 20% of profits over a certain target that come on top of a 2% management fee, a formula known as 2-and-20.
Private equity observers say the figure will be big, and its release could usher in a new era of greater disclosure and more public pressure to lower fees. "All pension funds are going to be embarrassed when they have to reveal just how much they are actually paying private equity in performance fees," said Eileen Appelbaum, senior economist at the Center for Economic and Policy Research, a Washington think tank, and author of "Private Equity at Work: When Wall Street Manages Main Street." "And once CalPERS publishes what it has paid, it will be difficult for CalSTRS (California State Teachers' Retirement System) and other pension funds to refuse to do so. The amounts are going to be ginormous, and public officials are going to ask whether these payments ... are warranted."
Private equity defenders say the carried interest issue has been wildly misunderstood and that what critics call a "fee" is actually just a share of profits taken out by private equity firms before delivering investors' share, known as the "net return." As such, it doesn't need to be reported as a pension fund expense. What's more, they say, carried interest costs have always been available to investors in audited financial statements, even if not always in a uniform format ......................