Calpers Versus Mercury News: Disclosure Comes to Private Equity

Abstract

In November 2002, a California state court required the California Public Employees' Retirement Systems (CalPERS) to report publicly its returns on private-equity investments. This case examines the controversy surrounding the disclosure of private-equity returns mandated by the court decision. It includes discussions of the reaction of general and limited partners and the issues surrounding the sizable amounts of pension money placed in alternative investments. The CalPERS decision dovetailed with efforts by the Association for Investment Management and Research (AIMR) and the British and European Venture Capital Associations to reach greater agreement on disclosure standards in reporting the results of private-equity investments. The case details one set of standards, AIMR's Global Investment Performance Standards (GIPS), which became effective January 1, 2005. Students are asked to calculate the proposed metrics for a typical fund and assess their usefulness to a prospective investor. More broadly, the case addresses the type of information necessary to benchmark private-equity returns properly and the consequences of this type of disclosure to the industry.