PhillyDeals: Is posting PSERS' investment deals a "Snowden moment"?

The underfunded Pennsylvania Public School Employees Retirement System has deleted contracts with "alternative investment" funds - that invest billions of dollars in teachers' retirement money - from the website of the state's Treasury Department.

The decision to no longer make the contracts available for public scrutiny was confirmed Thursday by Evelyn Tatkovski, a spokeswoman for PSERS.

I had asked PSERS about claims by Susan Webber, the New York financial consultant who runs the caustic website NakedCapitalism.com, that the posted documents had created a "Snowden moment."

Webber contended that the highly detailed contracts were the investment-industry equivalent of rogue military contractor Edward Snowden's massive disclosure of U.S. National Security Agency documents last year.

Webber argued on her blog, and under her pen name, Yves Smith, that the public postings of the PSERS investment deals had created a "treasure trove" of fee calculations and complex operating details that aren't normally shared with the public, or even with some investors.

The disclosure, Webber predicted, would enable hedge- fund clients and the general public to explore little- scrutinized fees and management practices at Cerberus Capital Management L.P.; Kohlberg, Kravis, Roberts & Co.; TPG Capital L.P.; and other large investment funds that manage money for PSERS and other clients. Managers of funds such as these reap large fees even in years when their returns trail the stock market.

Webber pointed to a recent Wall Street Journal story that cited contract details that raised questions about fees charged to clients by Capstone Partners, a company with close ties to KKR. These were details not normally made public.

Webber said it was an example of the kind of reporting the PSERS disclosures have made possible.

"PSERS posted the alternative-investment contracts in question, along with hundreds of other PSERS investment and non-investment-related contracts, on the Treasury Department website pursuant to the commonwealth's right-to-know law," said Tatkovski, the PSERS spokeswoman.

But beginning in 2012, after some "alternative-investment managers" protested that their contracts should be kept confidential, PSERS "ceased posting alternative-investment contracts that reveal the terms by which the managers operate their business enterprises," Tatkovski added.

Instead, PSERS began posting less-descriptive "companion contracts" or "subscription agreements" that list the retirement system's investments with private contractors, she said.

But PSERS still kept the old, more-detailed contracts online at the Treasury site - until an unnamed "recent blog posting" provoked the decision to take them down.

The posting was believed to be from Webber's blog.

PSERS officials did not immediately answer questions about the legal basis for pulling the investment-contract details, or what the money- management firms may have threatened to do if the state kept their contracts public.

Gary Tuma, spokesman for state Treasurer Rob McCord, said McCord has not stopped PSERS from pulling the documents because his agency only maintains the website.

Each state agency determines its right-to-know responsibilities, Tuma said.

But shouldn't state investment records be public?

McCord told me he was still assessing the situation.

"Sometimes, there are good business reasons to protect the privacy of negotiations and valuations," McCord said. But "when in doubt, I prefer to err on the side of transparency."