California Controller calls on SEC to mandate ILPA template

For the second time in the past five months, California State Controller Betty Yee has called on US Securities and Exchange Commission (SEC) Chair Mary Jo White to take regulatory action in order to increase fee transparency for private equity investors.

In a letter addressed to White dated January 29, Yee urged the regulator to “undertake a rulemaking process” using the Institutional Limited Partners Association (ILPA) fee reporting template in order to “require full disclosure of all fees on both the partnership and portfolio company level,” according to a copy of the letter seen by pfm.

In the letter, Yee referenced a similar note she sent to White in October, in which she stated that “the lack of full disclosure of private equity firm expenses poses a hidden risk that inevitably results in an inherent financial disadvantage detrimental to the limited partners.”

ILPA published the final version of the fee template last week, receiving public endorsement from LPs including California State Teachers Retirement System (CalSTRS) and the California Public Employees Retirement System (CalPERS) and GPs like TPG Capital and The Carlyle Group.

These endorsements are only on a voluntary basis, Yee noted in the letter. If the SEC were to require that managers use the template, it would “help to ensure that LPs have equal information as well as rule out a general partner excluding LPs who demand full disclosure of fees.”

Yee is an ex officio member of both the CalPERS and CalSTRS boards. Yee CC’d CalPERS chief investment officer Ted Eliopoulos, private equity head Réal Desrochers and board chair Robert Feckner along with CalSTRS chief investment officer Christopher Ailman, private equity director Margot Wirth and board chair Harry Keiley on the letter.

The CalPERS and CalSTRS members were cc’d as a courtesy and their inclusion does not indicate support of Yee's proposals, a public information officer at the Controller's office told pfm. A CalPERS spokesperson stated he had no knowledge of the letter in an email to pfm and CalSTRS did not respond to requests for comment.

In addition to requesting that the SEC mandate use of the ILPA fee template, Yee also urged the SEC to expand its existing database of Form ADV disclosure statements to include historic filings. Investment advisers are required to file Form ADVs annually or when material changes occur, but only the most recent filings are available to the public on the SEC’s Investment Adviser Public Disclosure database.

This administrative change would bring the Form ADV database up to the standard of the SEC’s EDGAR database, which allows public access to all historic filings.

“There is certainly compelling evidence that private equity investors need the same level of transparency that EDGAR database users receive,” said Yee in the letter.

The SEC has yet to respond to Yee, according to the Controller's office. The SEC declined to comment to pfm.