SEC subpoenas CalPERS, CalSTRS for information about Yucaipa

  • SEC sought information about Yucaipa advisory boards
  • Nature of investigation not clear
  • Unusual for SEC to subpoena a firm’s LPs

The Securities and Exchange Commission earlier this year subpoenaed the nation’s two largest pension systems, CalPERS and CalSTRS, for information about Yucaipa Cos, according to sources.

The nature of the SEC’s inquiries into the firm is unclear, nor is it clear whether an SEC probe of the firm is ongoing. The SEC subpoenas were sent to the pensions in the April/May time frame, sources said.

California Public Employees’ Retirement System General Counsel Matthew Jacobs said in an internal memo dated May 10 the system had received an SEC subpoena. Specifically, the SEC asked for “communications regarding any advisory board of any Yucaipa fund,” the CalPERS memo said. CalPERS was not the subject of the investigation, according to the memo.

California State Teachers’ Retirement System also received a subpoena from the SEC in April that included inquiries about advisory boards, spokeswoman Michelle Mussuto confirmed for Buyouts.

Frank Quintero, spokesman for Yucaipa, Ryan White, spokesman for the SEC and Brad Pacheco, a spokesman for CalPERS, declined to comment.

The SEC can subpoena witnesses to “testify and produce books, records and other relevant documents” once it obtains a formal order of investigation. This suggests an SEC subpoena represents a more significant probe than a routine exam.

Sources told Buyouts in past interviews it was unusual for the SEC to subpoena a private equity firm’s limited partners for information. Buyouts reported in August the SEC had subpoenaed CalPERS for information about Silver Lake, specifically communications between the two regarding accelerated monitoring fees, management fee offsets and co-investment opportunities.

At the time, attorney George Kostolampros of Venable said it was unusual, but he had seen the SEC use its subpoena powers to collect information.

“It’s a matter of finding as much information as possible and tracking down information and corroborating what’s there and what’s not there,” Kostolampros said.

Yucaipa, with more than $2.7 billion under management as of Dec. 31, 2015, was founded by billionaire Ron Burkle. Burkle also is part owner of the Pittsburgh Penguins  of the National Hockey League. Burkle formed Yucaipa and related entities in 1986, according to the firm’s Form ADV.

Yucaipa has raised several funds, including its flagship family of funds called American Alliance Funds.

The firm raised three American Alliance Funds. Fund I, an early 2000s vintage, was generating a 2.7 percent net internal rate of return and a 1.1x multiple as of March 31, 2016, according to performance information from CalPERS. Fund II, a 2008 vintage that targeted $2 billion (how much it raised is unclear), was producing a 9.1 percent net IRR and 1.4x multiple, CalPERS said. It’s unclear how much Fund III raised.

Yucaipa raised a Special Situations Fund, a 2002 vintage, according to an investment report from Los Angeles City Employees’ Retirement System. The fund was generating a negative 3.7 percent net IRR and a 0.9x multiple, CalPERS said.

The firm also raised a series called Corporate Initiatives Funds I and II. Fund I was producing a negative 4.5 percent net IRR and a 0.8x multiple, while Fund II, a 2008 vintage, was generating a negative 2.5 percent net IRR and a 0.9x multiple, according to CalPERS performance numbers.

Action Item: Check out Yucaipa’s Form ADV here:

Pittsburgh Penguins Co-Owner Ron Burkle (left) returns from a break in league negotiations in New York on December 4, 2012. Photo courtesy Reuters/Eric Thayer