For the past several years, many US public pension plans have been vocal about general partners making more frequent and detailed disclosures about their investments. Despite this push, quite a few of these investors have not been very transparent themselves. In fact, the situation appears to be getting worse.
General partners and limited partners alike have cited competitive disadvantage as justification for confidentiality. Notably, a California bill, AB 382, which exempts the state’s public pension plans from disclosing real estate investment information, was signed into law in 2013 based on this premise. The idea is that if a GP’s “trade secrets” are publicly revealed, competitors could “outbid” that GP on a property investment or on fund terms, which ultimately could negatively impact the performance of the investment or fund, and ultimately, the returns for the pension plan.
This argument, however, has led some public pension systems to withhold even the most basic investment data. Apparently, just about any piece of investment-related information can be considered a “trade secret.” What’s more, the information that these institutions aren’t disclosing often is readily available from another public pension system, which basically renders the point about competitive disadvantage moot.
Ironically, it’s not the California-based public pensions where we’ve seen the most dramatic changes in disclosure. For example, the Los Angeles County Employees’ Retirement Association, which had pushed for the passage of AB 382, has continued to provide supporting documents for their property investments to the public.
One non-California-based public pension, however, made an abrupt shift earlier this year, after previously sharing its supporting documents on fund investments within days of its investment committee meetings. Citing the competitive disadvantage issue, this investor now is allowing general partners to first review the documents before they can be publicly disclosed. Those GPs can redact any information in those materials or choose to not have those documents released at all. Because of this, the supporting documents now may not be available to the public for months – if ever.
But the most worrying example of public pension plans’ regression in transparency comes from the New York State Teachers’ Retirement System (NYSTRS), which has never been very open about its real estate investments. Although it posts a summary of actions after each board meeting, the pension system typically only discloses the name of the fund manager or the investment vehicle and the commitment amount in these summaries.
Moreover, NYSTRS also makes additional commitments below a certain dollar amount threshold outside of these meetings. These transactions, however, are not disclosed until the following quarter in the pension plan’s real estate investment portfolio report.
But the most recent report, from NYSTRS’ October 29-30 board meeting, showed an alarming change: most of the last 10 pages of the document was blacked out. The focus of those 10 pages was the performance of NYSTRS’ real estate investments, but aside from the name and date of the direct or fund investment, all of the performance-related information had been redacted. NYSTRS did not respond by press time to requests for an explanation.
What’s so troubling about this redaction is that NYSTRS can’t claim it’s trying to protect any trade secrets by withholding information on returns. It’s one thing for an institution to not wish to not disclose information about investments that have yet to be made. But transactions that already have closed is another matter entirely.
Perhaps NYSTRS has been threatened by some GPs to be shut out of certain funds if it didn’t redact the performance data. But we can’t imagine any fund manager that actually would turn away a big pension plan like NYSTRS. And once again, the performance information already is made widely available by other LPs – even by those that typically don’t make disclosures on their commitments. So we’re really puzzled by all of the blackouts.
In an ideal world, standards should be set for how LPs should disclose investment information, similar to a movement already under way for GPs. But redacting reports makes it all-too-easy for public pension plans to conceal from public view whether or not their GPs, and in turn, they themselves, have invested wisely. Cloaking information in a shroud of secrecy creates a slippery slope for irresponsible behavior to potentially occur. If GPs and, by extension their LPs, have made the right investment decisions, they should have nothing to hide. If they haven’t, the proper course of action is to address and learn from their mistakes, not to cover them up.
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