The private equity industry may have dodged a bullet after California Assemblyman Alberto Torrico withdrew his Responsible Private Equity Investment Act of 2008 bill (
AB 1967), which would have prevented state pension systems from investing in buyout funds partially owned by sovereign wealth funds whose governments have objectionable human rights records.
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PeHUB's Dan Primack wrote:
In a press release, Torrico said: "This delay will give us time to properly address some of the concerns that have been raised." In other words, SEIU support of the measure couldn't overcome loud objections by CalPERS, CalSTRS, the private equity industry and (most importantly) Governor Schwarzenegger.
This doesn't come as much of a surprise, because this was a flawed bill from the start. In fact, some of its very concessions to opponents were so illogical as to make the entire bill more likely to be defeated.
Primack is right. As Dealscape noted earlier this month, the battery of tests would have likely tripped up most SWFs -- even those from nations with clean human rights records (we're looking at you Norway). Consequently, the likely outcome of the bill would have been to outlaw pension funds from investing in blue-chip buyout funds, which are expected to accept more money from SWF in the coming years. Schwarzenegger noted the potential economic impact in his Los Angeles Times op-ed piece:
Yes, California is concerned about human rights violations. However, this measure, AB 1967, is an ineffective way to demonstrate California's concern. It would not lead to the kind of change its proponents hope for -- and it would cause a deep wound to our retirement funds and government programs when we can least afford it.
Torrico's withdrawal proves Dealscape's earlier point:
This isn't the first time that California's two big pension funds have been buffeted by political initiatives coming out of Sacramento, particularly demands to invest more locally. But time and again, the need for the two funds to maximize their returns by spreading their billions widely has trumped the parochial concerns of state politicians or special interests. That'll probably happen here, but the struggle is never pleasant.
- Matthew Wurtzel
See story from The Sacramento Bee
See opinion piece from Governor Schwarzenegger from the Los Angeles Times
See story from peHUB
See earlier story from Dealscape
