CalPERS Tackles PE Legislation

"Sovereign wealth funds have drawn much attention from many corners, including Congress. But, proposed legislation in California seeking to restrict pension fund allocations to sovereign wealth-backed private equity firms is taking center stage in the institutional investor community.

'It's unclear what the goal of this legislation is,' says Bruce Ettelson, a partner in Kirkland & Ellis who heads its private funds group. 'You're basically causing the private equity funds to choose between the sovereign wealth funds and California pension funds, in which case the private equity funds may choose the sovereign funds because they may have more money and less investment requirements,' he says."

If passed, the new measure would require California pension managers to file public reports within 60 days of making a final investment decision.

Considering that CalPERS and CalSTRS manage $240 billion and $167 billion of assets, respectively, the proposed legislation isn't insignificant. Moreover, the nation's two largest pension funds are investors in a substantial number of private equity limited partnerships, but their assets are dwarfed by that of the foreign state-sponsored funds.

'As large as California pension plans are, the collective amount of money that's both currently in sovereign funds and may be there in the near future may heavily outweigh that of the California pension plans,' Ettelson says."

This article appeared in its entirety in the March 24, 2008 edition of Investment Dealers' Digest