Key Takeaways
- • California's fee disclosure law (codified in Government Code Section 7514.7) mandates that public pension and retirement systems publicly disclose fees, expenses, and carried interest paid to alternative investment vehicles, with disclosures required at least annually.
- • The law applies to California public investment funds at state, county, and city levels, as well as the University of California Retirement Systems, creating broad compliance requirements for asset managers seeking capital from these sources.
- • Alternative investment use by California public pension plans has more than doubled over the past 15 years, accompanied by proportional increases in total investment fees, driving the regulatory push for transparency.
- • The legislation has been in effect for over five years, allowing the market sufficient time to adapt practices and develop standardized approaches to compliance with disclosure requirements.
- • Asset managers fundraising with California pension plans must now account for fee disclosure obligations as a material component of investor relations and fund documentation strategy.
Summary
California enacted legislation requiring unprecedented transparency in alternative investment fee structures paid by public pension plans. The law, codified in Section 7514.7 of the California Government Code, obligates every public investment fund to require each alternative investment vehicle in which it invests to make annual disclosures covering fees and expenses paid directly to the alternative investment vehicle, fund manager, or related parties.
The regulatory scope extends across all California public pension systems, including state-level entities, county and municipal pension plans, and the University of California Retirement Systems. This breadth of application creates material compliance obligations for asset managers pursuing institutional capital from California sources, affecting fundraising strategies, fund documentation, and ongoing investor relations protocols.
The legislative impetus reflects significant growth in alternative asset allocation among California public pensions. Public pension plans' use of alternative investments has more than doubled over the previous 15-year period preceding the law's enactment, accompanied by corresponding increases in total investment fees. This expansion prompted policymakers to implement disclosure mechanisms intended to increase transparency behind fee structures and expense arrangements that had historically remained opaque to public scrutiny.
Since implementation over five years ago, market participants and asset managers have adapted operational practices to comply with disclosure requirements. Legal counsel specializing in asset management regulations, including firms such as Ropes & Gray, have advised clients on compliance implications for fundraising efforts with California pension plans and the evolution of market practice following the law's enactment. Understanding both the statutory requirements and practical compliance frameworks has become essential for alternative asset managers targeting California institutional capital.
The regulatory scope extends across all California public pension systems, including state-level entities, county and municipal pension plans, and the University of California Retirement Systems. This breadth of application creates material compliance obligations for asset managers pursuing institutional capital from California sources, affecting fundraising strategies, fund documentation, and ongoing investor relations protocols.
The legislative impetus reflects significant growth in alternative asset allocation among California public pensions. Public pension plans' use of alternative investments has more than doubled over the previous 15-year period preceding the law's enactment, accompanied by corresponding increases in total investment fees. This expansion prompted policymakers to implement disclosure mechanisms intended to increase transparency behind fee structures and expense arrangements that had historically remained opaque to public scrutiny.
Since implementation over five years ago, market participants and asset managers have adapted operational practices to comply with disclosure requirements. Legal counsel specializing in asset management regulations, including firms such as Ropes & Gray, have advised clients on compliance implications for fundraising efforts with California pension plans and the evolution of market practice following the law's enactment. Understanding both the statutory requirements and practical compliance frameworks has become essential for alternative asset managers targeting California institutional capital.
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