Let’s look at other reasons why allowing CalPERS to make secret loans is a terrible idea.
CalPERS and CalSTRS are already major investors in private debt, via private debt funds, so AB 386 is unnecessary. CalPERS is already #16 in the world and CalSTRS, #30. Both giant funds have demonstrated that California’s disclosure laws aren’t an impediment to making this kind of investment. It should not be surprising that no other California public pension fund is supporting this bill.
There’s no good reason to create an internal team to do private debt investing. Plenty of experts have been urging large private equity investors like CalPERS to bring private equity investing in house for years. First, the fees and costs are so eye-popping, at an estimated 7% per year, that cutting that down to say 2% or 3% means that a relatively newbie investor like CalPERS could still fall a bit short compared to industry average gross returns and still come out ahead on a net basis. Second, industry experts also confirm that there are many seasoned, skilled professional who would trade a less pressured life (particularly the costs and stresses that relate to regular fundraising) for less lavish pay.
Author(s): Yves Smith
Publication Site: naked capitalism