AFSCME District Council 36

AB 2833

Article By: Fred Massey

State Treasurer John Chiang, who sponsored AB 2833, created this bill to establish greater transparency and accountability in public pension funds. This bill covers all public pension funds in California. This includes the University systems, CALPERS, CALSTRS, 1937 Act county pensions as well as independent public pensions. The assembly bill requires that all public pension funds publically disclose the various fees paid to private equity general partners, hedge fund general partners and other alternative investment partners on an annual basis. There are a lot of hidden fees in these investment vehicles, and incomplete disclosures in the alternative investment industry. They are also reluctant to reveal personnel changes. Chiang said “[the industry] robs us of the ability to determine the true risk and rewards of these investments.” The industry calls these shadow fees trade secrets.

Private equity and hedge funds typically charge a 1 or 2% annual management fee on committed capital and keep 20 per cent of the profits as carried interest which is taxed as capital gains. In the twenty- five years from 1990 until 2015, CALPERS generated $34 billion in profits from private equity and paid $3.4 billion in performance fees. CALPERS has about 9% of their assets in private equity.

Both houses of the legislature, assembly and senate, took up this legislation during August. Governor Brown signed the bill in mid-September. Assemblyman Cooley carried the bill and AFSCME Local 2399 co-sponsored the bill.
This law addresses the Alternative Investment Community’s desire to hide information about their strategies and methods, staffing, fees, and profits from the public. Transparency is an important public value that needs to be respected. AB 2833 goes a long way to addressing the problem.

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