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Newsmakers

California Requires Public Pension Disclosure of Alts Fees

The controversial law will go into effect January 1, 2017.

California Governor Jerry Brown has signed into law a bill requiring public pension funds in the state to disclose fees, expenses, and carried interest paid on alternative investments.

The new law, which affects commitments to private equity, venture capital, hedge funds, and absolute return funds, will apply to investments made on or after January 1, 2017.

“California taxpayers and pension beneficiaries will now get to go behind the curtain to view the previously hidden fees and charges paid to Wall Street firms,” said State Treasurer John Chiang, who sponsored the bill.

Public pensions based in California—including the California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS)—will be required to “undertake reasonable efforts” to obtain and disclose fee information, as well as the gross and net rate of return of alternative investment vehicles, at least once annually at a meeting open to the public.

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Some funds, including CalSTRS, had previously voiced concern that disclosure requirements would limit their ability to invest in alternative assets.

In a statement in May, the Los Angeles Fire and Police Pensions said the bill would “require sensitive information regarding the underlying position(s) of private equity funds,” which are “considered proprietary information.”

“There are several private equity funds that have made the decision to exclude public pension plan investors within the state of California from investing due to disclosure requirements,” the fund continued. “Passage of this law will most likely increase the number of private equity funds with such restrictions.”

Since then, the bill had been watered down, dropping the requirements to disclose information on existing investments as well as removing mention of the Institutional Limited Partners Association (ILPA) fee reporting template, usage of which was required by the initial draft.

Both CalPERS and CalSTRS have already endorsed the ILPA template.

Related: Taking the Guesswork Out of Private Equity Fees

Home > News > Manager Selection > Why Manager Tenure Doesn’t Matter
Manager Selection

Why Manager Tenure Doesn’t Matter

A long track record doesn’t necessarily guarantee good performance, according to research.

How important is experience in investing?

A recent study from the Cass Business School in London sought to discover whether active managers with long tenures outperformed their less-experienced peers.

“Fund managers with at least 10 years of experience might be able to generate positive benchmark-adjusted returns for investors over time,” argued Andrew Clare, professor of asset management at Cass.

An analysis of 357 US equity managers using Morningstar data found that those with at least a decade of experience as of December 2014 earned almost 50 basis points in excess returns per year net of fees over the 10-year period.

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These results, however, should be taken with a grain of salt: “Of course there is an element of survivorship bias here,” Clare warned. “Presumably managers with a good track record are more likely to stay in their role than those with a poor one.”

On top of that, Clare found that performance was fairly dispersed, with just over 60% of the experienced managers outperforming their benchmarks on a net-of-fee basis. Managers also appeared to decline in performance over the decade studied.

“It is possible that as these managers matured further that their appetite for risk declined,” Clare said.

Overall, the study offered no conclusive evidence that long-tenured investors consistently performed better than newer peers.

“Although their average performance over the 10-year period was relatively good, from year to year there was little evidence of performance persistence,” Clare wrote.

However, there may be a few characteristics that would make more experienced managers more likely to outperform.

Managers who charged lower fees, were biased toward small-cap equities and against value stocks, and held more concentrated portfolios tended to deliver better risk-adjusted performance, Clare said. 

Read the full report, “The Performance of Long-Serving Fund Managers.”

Related: #48 Youth & #47 Experience

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