California Treasurer Says He’ll Look Into CalSTRS’ PE Fees As Carried Interest Scrutiny Expands

Two weeks ago, CalPERS came under fire for not collecting data on the carried interest fees it pays to its general partners. In the wake of scrutiny from national media and state Treasurer John Chiang, the pension fund sent out a directive to staff to begin collecting the fee data.

Now, the scrutiny has expanded to include CalSTRS; the teachers’ pension fund admitted earlier this month that it did not collect data on its carried interest fees, either.

From the Financial Times:

The second-largest US public pension fund has admitted it has failed to record total payments made to its private equity managers over a period of 27 years.

The admission by Calstrs, the $191bn California-based pension fund, prompted John Chiang, the state treasurer of California, to declare he will investigate the failure, which poses serious questions as to how pension fund money is being spent.

[…]

A spokesman for Calstrs, which helps finance the retirement plans of teachers, said the fund does not record carried interest. “What matters is the overall performance of the portfolio.”

Following questions from FTfm, Mr Chiang said he would demand Calstrs look into payments of carried interest to its private equity managers.

“Disclosure [of carried interest fees] is very important,” said Mr Chiang, who sits on the administration board of both Calstrs and Calpers.

[…]

Calstrs, which manages a $19.3bn private equity portfolio and has 880,000 members, said it has no plans to upgrade its systems for tracking and reporting payments to private equity managers.

Margot Wirth, director of private equity at Calstrs, said it used “rigorous checks” to ensure private equity managers took the right amount of carried interest.

All of Calstrs’ partnerships with private equity managers were independently audited, Ms Wirth added. She said the pension fund carried out its own internal audits and employed a specialist “deep dive” team to look at private equity contracts.

Carried interest is a profit-sharing fee paid by pension funds to the general partners with which they’ve invested.

Photo by Stephen Curtin via Flickr CC License