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CalPERS versus Mercury News: Disclosure Comes to Private Equity
Chaplinsky, Susan; Perry, Susan Case F-1438 / Published April 15, 2004 / 20 pages.
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Product Overview

In November 2002, a California state court required the California Public Employees' Retirement Systems (CalPERS) to publicly report its returns on private-equity investments. This case examines the controversy surrounding the disclosure of private-equity returns mandated by this court decision. It includes discussions of the reaction of general and limited partners and the issues surrounding the sizable amounts of pension money invested 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 would become 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 properly benchmark private-equity returns and the consequences of this type of disclosure to the industry.


Learning Objectives

• Evaluate the proper balance of information among parties with potentially differing interests: LPs, GPs, and the “public” • Understand the kind of information necessary for the proper benchmarking of private-equity returns • Discuss the tension that transparency creates between better information and a fund’s ability to earn superior returns • Better understand what agreement exists around valuation standards in the industry and the norms for marking invested assets up or down • Calculate and assess the usefulness of the proposed new GIPS performance metrics (since-inception IRR, DPI, RVPI, and TVPI) for a buyout fund

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  • Overview

    In November 2002, a California state court required the California Public Employees' Retirement Systems (CalPERS) to publicly report its returns on private-equity investments. This case examines the controversy surrounding the disclosure of private-equity returns mandated by this court decision. It includes discussions of the reaction of general and limited partners and the issues surrounding the sizable amounts of pension money invested 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 would become 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 properly benchmark private-equity returns and the consequences of this type of disclosure to the industry.

  • Learning Objectives

    Learning Objectives

    • Evaluate the proper balance of information among parties with potentially differing interests: LPs, GPs, and the “public” • Understand the kind of information necessary for the proper benchmarking of private-equity returns • Discuss the tension that transparency creates between better information and a fund’s ability to earn superior returns • Better understand what agreement exists around valuation standards in the industry and the norms for marking invested assets up or down • Calculate and assess the usefulness of the proposed new GIPS performance metrics (since-inception IRR, DPI, RVPI, and TVPI) for a buyout fund