CalPERS paid $3.4 billion to private equity firms

For years, state pension funds have invested money earned by teachers, firefighters and other government employees with private equity firms without having a full picture of how much they were earning and what they were paying in expenses.

The move by CalPERS, the country’s biggest state pension fund, to disclose the details of its investment profit — called carried interest — could help to pave the way to more transparency in the private-equity industry, historically one of the most secretive corners of the financial world.

“Private equity is a complicated asset class and the board and investment office staff will now have even more insight into our program,” Henry Jones, CalPERS’ board vice president and the chairman of its investment committee, said in a statement this week.

Private-equity firms, which pool money from partners to buy companies in the hope that they make more money when the company is sold publicly, typically charge investors a management fee of 1 to 2 percent of assets and about 20 percent of any gains.

Scott Stringer, the New York City comptroller, recently commissioned a study of the city’s five pension funds and found that external money managers had fallen $2.5 billion short of benchmark returns over a 10-year period, in part because of high fees and poor performance.

[...] last week, the New Jersey State Investment Council voted unanimously to review the fees and performance for the New Jersey Pension Fund’s investments over a five-year period, according to a report by Pensions and Investments, an industry publication.

CEO Ted Eliopoulos announced this year that CalPERS would cut by more than half the external money managers it invests with for private-equity, real estate and broader equity funds.