CalPERS delays vote on sovereign wealth bill

The retirement system’s board has postponed its vote on a bill staff estimates would cost up to $12 billion in lost private equity returns.

The $253 billion (€160 billion) California Public Employees’ Retirement System, the largest public pension fund in the United States and one of private equity’s most influential investors, has delayed its vote on a controversial California bill attempting to curb investments in private equity firms owned by certain sovereign wealth funds.

CalPERS’ investment staff estimates the bill could cost the pension as much as $12 billion over the next 10 years in lost revenue.

The bill, sponsored by Democratic Assemblyman Alberto Torrico, would prohibit all state pension funds in California from investing directly in a private equity company that is owned in whole or in part by a sovereign wealth fund, or in a private equity fund managed by a firm owned by a sovereign wealth fund, if the sovereign wealth fund is associated with countries that are not a signatory to at least five of six international human rights treaties.

CalPERS said it currently has relationships worth $9 billion with private equity firms backed by sovereign wealth funds. In its recommendation to the investment committee to oppose the bill, CalPERS staff voiced concern that such legislation would preclude the retirement system from investing in the highest performing funds, many of which attract sovereign wealth investments.

In addition to investing in their private equity funds, CalPERS owns stakes in the management companies of Apollo Management and The Carlyle Group, both of which are partially owned by sovereign wealth funds potentially affected by the bill, AB 1967.

The proposed legislation, set to be discussed by the state assembly, has generated vehement opposition from both the private equity industry and the state’s politically formidable pension plans.

The California State Teachers' Retirement System has decried the bill as well intentioned but ignorant of the global economy’s fundamental realities.

CalPERS has taken opposing stances on similar divesture legislation, including a bill last year to prohibit investment in businesses with links to Iran’s defense or energy sectors and to a Chinese divestment measure in the late 1980s.

The Service Employees International Union, one of the leading forces behind AB 1967, has been criticised in recent weeks for using the proposed legislation as leverage against Carlyle. The SEIU has staged vociferous protests against Carlyle, the most recent of which centred on its buyout of nursing home chain Manor Care.