I just received a copy of the proposed SEIU bill that would affect private equity investments made by the Washington State Investment Board, and have posted it here: I-414.pdf
My initial reaction is that it’s way too hyperbolic, in terms of listing the alleged offenses of private equity. In fact, the attacks detract from what should be the legislative goal of greater transparency and pension attention to corporate responsibility.
Leaving that aside, I’m generally predisposed toward both of the aforementioned goals — but this particular bill goes too far. Specifically, it requests that WSIB-backed private equity firms release both their own financial data and that of its portfolio companies. This would include: “Revenues, expenses, earnings, taxes paid, government revenues received, executive compensation, employment and compensation of non-managerial employees and debt levels, including debt-to-equity ratios.”
WSIB already discloses fund-specific performance, which ultimately is the most valuable tool in learning if a private equity fund is serving in its beneficiaries’ best interests. It also publishes board agendas and minutes to its website, but could certainly do a better job in terms of both timeliness and detail. And I’m actually okay with expanding transparency to include some additional PE firm financials, including fees and partner compensation. Fair price of feeding at the public trough.
But the rest should not only be opposed by the WSIB and the private equity industry, but also by fair-minded folks at SEIU (of which there are many). Public disclose of private portfolio company financials would violate trade secrets, and could put said companies at a competitive disadvantage (particularly when such obliqueness is one of the main benefits of being private in the first place). It is not in a beneficiary’s best interest to either: (A) Not get to indirectly invest in a good deal, or (B) Invest in said deal, but then have the company needlessly damaged.
Remember, WSIB already receives portfolio company-level financials, but it’s kept confidential by fiduciaries. If SEIU wants to ensure that the fiduciaries receive certain types of information, then write that bill and WSIB can use it when negotiating LPAs. But the overall bill reaches too far, and may not be practically possible even if PE firms acceded to it.
California already split this baby years ago, and it’s grown up just fine.