CalPERS Readies Fee Disclosure; Carried Interest Expected to “Be In the Billions”

Last month, CalPERS began asking its general partners for data on profit-sharing fees – called carried interest – dating back to 1998.

Pension funds keep tabs on management fees, but don’t typically disclose (or even track) carried interest, so observers are waiting intently for this disclosure.

CalPERS is now readying the release of the carried interest figure, and this week fund CIO Wylie A. Tollette said the number is expected to “be in the billions”.

From the LA Times:

Wylie A. Tollette, CalPERS’ chief operating investment officer, said CalPERS plans to disclose the grand total of carried interest it has paid out from funds operating since 1998, and “it’s going to be in the billions.”

“It’s a dilemma,” he added. “You don’t want it to be astronomically high because that represents profits that you wanted to grab for yourself.” But he said CalPERS needs the high returns private equity traditionally has provided, and the fee figure represents the going rate.

“It’s about time,” [CalPERS board member J.J.] Jelincic said in an interview. “I knew we weren’t disclosing it. I was shocked to find out we weren’t even tracking it. It’s obviously good to know what the hell we’re paying.”

[…]

Private equity defenders say the carried interest issue has been wildly misunderstood and that what critics call a “fee” is actually just a share of profits taken out by private equity firms before delivering investors’ share, known as the “net return.” As such, it doesn’t need to be reported as a pension fund expense. What’s more, they say, carried interest costs have always been available to investors in audited financial statements, even if not always in a uniform format.

CalPERS manages $300 billion in assets.

Photo by  rocor via Flickr CC License