Firms tell committee they will test investment existence and valuations and can expand procedures to review fees on request
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Summary
Firms described standard audit procedures—custodian confirmations and manager confirmations, valuation specialist review of appraisals, and population‑level analytics—to test marketable and alternative investments. Several said they could perform deeper procedures on investment fees if the committee requests it.
The committee repeatedly asked how firms would test investment assets and whether the firms would analyze disclosures and fees paid to investment managers.
Representatives said the core assertions are existence and valuation. For marketable securities, firms described automated pricing routines and custodian confirmations to test existence and fair value. For alternative and private investments, firms described a layered approach: (1) obtain audited financial statements for investee funds when available; (2) use confirmations and subscription documents; (3) use valuation specialists to review appraisals for direct investments (private equity, real estate); (4) analyze cash‑flow activity during the quarter‑end lag between audited fund statements and CalPERS’ 6/30 reporting date; and (5) use analytics and benchmarks at portfolio level to identify outliers.
On investment fees, firms said GASB and GAAP disclosure rules govern presentation and GASB has not mandated a single national standard for reporting private‑market fees. Several firms told the committee they could incorporate additional procedures focused on investment fees (including review of ILPA‑type reporting or subscription agreements) if the committee directed the auditor to do so. Firms committed to engaging with CalPERS management to design any deeper fee review and to include related scope in the audit plan if requested.
No committee action was taken; these approaches will be evaluated as part of the procurement scoring.