California Requires Private Equity and Hedge Funds to be More Transparent

With a focus that is unprecedented, pensions, regulators and policymakers are paying greater attention toward all the types of fees levied by private equity firms.


In much anticipation by the financial media and private equity participants, California Governor Edmund G. “Jerry” Brown Jr. inked into law AB 2833. The bill mandates enhanced reporting by public pension funds, including the University of California’s pension assets, alternative investment fees for commitments made on or after January 1, 2017. Money managers affected by the law include private equity firms, venture capital firms, hedge funds and absolute return funds.

Here are some key points to the law

    Every public investment fund shall require each alternative investment vehicle in which it invests to make the following disclosures at least annually:

    Planks Paragraph
    1 The fees and expenses that the public investment fund pays directly to the alternative investment vehicle, the fund manager, or related parties.
    2 The public investment fund’s pro rata share of fees and expenses not included in paragraph (1) that are paid from the alternative investment vehicle to the fund manager or related parties. The public investment fund may independently calculate this information based on information contractually required to be provided by the alternative investment vehicle to the public investment fund. If the public investment fund independently calculates this information, then the alternative investment vehicle shall not be required to provide the information identified in this paragraph.
    3 The public investment fund’s pro rata share of carried interest distributed to the fund manager or related parties.
    4 The public investment fund’s pro rata share of aggregate fees and expenses paid by all of the portfolio companies held within the alternative investment vehicle to the fund manager or related parties.
    5 Any additional information described in subdivision (b) of Section 6254.26.


Another interesting part of the law reads:

    With respect to existing contracts not covered by paragraph (1), the public investment fund shall undertake reasonable efforts to obtain the information described in subdivision (a) and comply with the reporting requirements contained in subdivision (b) with respect to any information obtained after January 1, 2017.

The bill was authored by CA Assemblymember Ken Cooley (D-Rancho Cordova) and sponsored by California State Treasurer John Chiang. The bill went through amendments in August. Some changes including removing the requirement for full disclosure of related-party transactions.

In a press release, Chiang commented, “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.”

California is home to a number of public pension funds that invest substantially into private equity including California Public Employees’ Retirement System (CalPERS) and California State Teachers’ Retirement System (CalSTRS). At the same time, many California pensions are concerned that excessive disclosure could cause some private equity firms to not do business in California.

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