It was big news when a senior exec the California Public Employees’ Retirement System (CalPERS) commented that the pension fund did not know exactly what it was paying some of its Wall Street managers for their services.
When Wylie A. Tollette, the chief operating investment officer, reported to an investment committee earlier this spring that the fees CalPERS paid to private equity firms were “not explicitly disclosed or accounted for. We can’t track it today,” it kicked off a firestorm.
CalPERS is a giant in the pension fund industry. It manages the retirement funds of firefighters, police officers and many other California state employees and is generally considered to be one of the most sophisticated investors among pension funds.
Disclosure upsets some members of the board
J.J. Jelincic, a member of the CalPERS board, said the disclosure raised a red flag for him. “I am disturbed that we don’t disclose the carry,” Jelincic said, referring to carried interest, industry jargon for private equity performance fees. “I am appalled and, actually, I’m not sure I believe the staff when they say they don’t know what the carry is,” he continued to say.
Edward Siedle leading Kickstarter crowdfunding of CalPERS investigation
The unusual disclosure was also noted by Edward A. H. Siedle, a pension fraud investigator and ex-SEC attorney. Siedle, who has been involved in investigations of public pensions funds in North Carolina, Alabama and Rhode Island, as well as corporate retirement plans for Wal-Mart, Caterpillar and Boeing. Siedle has decided to launch an investigation CalPERS using crowdfunding. In his Kickstarter description of his project he says wants to find out exactly much CalPERS pays in private equity fees. He hopes to pay for the investigation with a $750,000 public campaign.
“The money manager knows to a penny what the fees are,” Siedle commented. “The only explanation is that the pension fund has chosen not to ask the question because, from an accounting and legal perspective, those numbers have to be readily available. They are intentionally not asking because if the fees were publicly disclosed, the public would scream.”
According to its annual report, CalPERS paid a total of $1.6 billion in management fees in 2014. Financial experts note that number does not include carried interest. Siedle and Jelincic have both suggested that carried interest from CalPERS investments in PE funds could add up to as much as $1 billion a year.