America’s largest and most influential pension fund has laid down the law on all private equity firms hoping to stay in its good graces or land new commitments. The $235 billion California Pubic Employees’ Retirement System has told private equity firms that from March 1, 2012 forward, they will have to comply with its new ILPA-style terms on capital calls and distributions. Or else.
It wasn’t yet clear what the consequences would be if a firm failed to comply. Instead, the pension aimed to focus the discussion on what adoption of its new template would accomplish, namely allowing CalPERS to shift its attentions to “risk management, transparency and good governance.”
The new directive not only applies to private equity firms and funds-of-funds firms seeking new commitments, but also to all firms already managing CalPERS money.
“Using the standardized template will sharpen our focus on risk management and compliance,” said Réal Desrochers, the CalPERS’s top private equity executive, in a statement. “It will improve efficiency and transparency and helps create an industry-wide best practice for private equity investments.”
The rules are an adapted version of ones laid out by the Institutional Limited Partners Association, an organization created to harmonize and institutionalize best practices over the terms and conditions between investors and fund sponsors. The backing by CalPERS of terms like this will likely go a long way toward making these standards common, if not standard.
CalPERS is the largest private equity investor in the country, with $49.5 billion in private equity commitments (as of June 30, 2011) and $34.2 billion in invested private equity capital (as of Sept. 30, 2011). It administers retirement benefits for more than 1.6 million California State employees and retirees.