Judge in Stockton Bankruptcy Calls CalPERS a “Bully”

gavel

The federal judge overseeing Stockton’s bankruptcy, Judge Christopher Klein, this week called CalPERS a “bully” with a “glass jaw”.

The comments came as Klein put his Stockton ruling in writing for the first time.

More from Reuters:

The judge overseeing the city of Stockton’s bankruptcy case in California described the country’s largest pension fund as a “bully” yielding an “iron fist,” in a written ruling that reiterated his oral confirmation of the city’s plan to exit Chapter 9.

U.S. Federal Bankruptcy Judge Christopher Klein’s ruling again staked out ground for bankrupt municipalities to alter their workers’ pensions, a contract that the California Public Employees’ Retirement System had ferociously argued could not be touched. Stockton, however, elected to leave its pensions intact.

“CalPERS has bullied its way about in this case with an iron fist insisting that it and the municipal pensions it services are inviolable. The bully may have an iron fist, but it also turns out to have a glass jaw,” wrote Klein, who orally confirmed the city’s plan to exit Chapter 9 protections in October.

[…]

Calpers did not immediately respond to a request for comment.

Stockton filed for bankruptcy in 2012. The city could have altered pensions as part of its bankruptcy plan, but opted against it.

 

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San Diego County Pension Trustee Decries Investment Strategy, CIO in Newspaper

megaphone

Samantha Begovich, a trustee for the San Diego County Employees Retirement Association (SDCERA), has penned a column in an area newspaper decrying the fund’s outsourced CIO, Salient Partners, and its investment strategy.

The fund voted last year to move on from Salient Partners and hire an in-house CIO after critics called Salient’s investment strategy too risky. But the process has been slow, and Salient could retain asset management duties until November 2015.

The public nature of Begovich’s complaints is unprecedented for a trustee of a fund that, until late last year, didn’t allow its board members to talk to the media at all.

From the column, published in the San Diego Union-Tribune:

I have repeatedly asked that Salient be sent a 30-day termination letter. CalPERS and CalSTRS posted 19 percent returns for 2014. SDCERA? 9 percent. The fund will be short $700 million of its Salient moonshot this fiscal year. How did this happen?

[…]

Critics allege one-sided staging in support of Salient. In August, realists took the mic. Expert after expert said our fund was at-risk. They said it is conflicted and imprudent having one subcontractor direct all $10 billion. They erupted at the irrationality of this adviser investing 50 percent of our money in his product line. If speech bubbles were above the experts, they would’ve said, “Say what?”

Imagine dealing with someone both clergy and salesperson to you. A word picture: Your rabbi/priest/cleric says, “It would be wise and virtuous for you to invest $2 billion in Advanced Manufacturing in the CaliBaja Mega Region. I have no track record, but you should invest in my CaliBaja Advanced Manufacturing firm.” See the tension? Asked why we weren’t in rival funds with stellar track records, Salient’s Lee Partridge said: “I don’t want to talk about my competition.”

Kudos to University of California Chief Investment Officer Jagdeep Singh Baccher, manager of $91 billion, for not laughing when I asked: What do you think of our investment strategy wherein 25 percent of our portfolio puts total value at risk of loss? He paused in disbelief and sagely said: “Well, I think you have your answer, don’t you?”

The fund’s board voted 8-1 last November to move CIO duties in-house and thus cut ties with Salient Partners.

 

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CalPERS Taps SIO for Real Assets From Morgan Stanley

Calpers

CalPERS has hired Paul Mouchakkaa to be its senior investment officer for real assets.

Mouchakkaa has previously been a managing director at Morgan Stanley and Pension Consulting Alliance. He’s also worked at CalPERS as a real estate portfolio manager.

More from Globe St.:

As SIO of real assets, the Los Angeles-based Mouchakkaa will manage a 60-member professional staff, with responsibility for implementing and managing investment strategy and policy for the pension fund’s $29.6-billion portfolio in real assets worldwide. He will also contribute as a member of the investment office’s senior management team in developing CalPERS overall investment strategy.

[….]

“Paul is a talented and experienced real estate professional, and we’re thrilled to have him on our team,” Eliopoulos says. “He has a proven track record of success and I’m confident that will continue at CalPERS.”

CalPERS’ real assets arm is made up of the real estate, infrastructure and forestland programs. Largest of these is real estate, which holds more than $25 billion in retail, office, industrial and other property assets. This past October, CalPERS said it planned to increase its commercial real estate allocation by 27% over the next year, upsizing its exposure by as much as $7 billion.

Mouchakkaa will start at CalPERS on March 2.

 

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CalPERS, CalSTRS Nab $300 Million From Settlement With S&P in Suit Over Mortgage Ratings

The CalSTRS Building
The CalSTRS Building

It was revealed today that credit rating agency Standards & Poor’s has entered a $1.375 billion settlement with 18 states over the alleged inflated ratings it gave mortgage-backed securities which eventually turned toxic.

CalPERS and CalSTRS are the biggest individual beneficiaries of the settlement; the entities will receive more than $300 million combined.

More from the Sacramento Bee:

CalPERS said it will receive $301 million from S&P. CalSTRS said it will get $23 million.

“This money belongs to our members and will be put back to work to ensure their long-term retirement security,” said CalPERS Chief Executive Anne Stausboll in a prepared statement.

[…]

“S&P played a central role in the crisis that devastated our economy by giving AAA ratings to mortgage-backed securities that turned out to be little better than junk,” said Stephanie Yonekura, acting U.S. attorney for Los Angeles, in a prepared statement. “This historic settlement makes clear the consequences of putting corporate profits over honesty in the financial markets.”

[…]

With the S&P settlement, CalPERS said it has now recovered approximately $900 million in settlements from bad investments made during the bubble. The big pension fund already settled with Fitch but is continuing to press its suit against Moody’s.

The Justice Department statement on the settlement, which includes a list of the states receiving money, can be read here.

 

Photo by Stephen Curtin

Preqin Tells Private Equity to Heed the “Power of the Limited Partner” After CalPERS’ Cuts

Calpers

Research firm Preqin has released a note reacting to CalPERS’ cutting of private equity managers.

The firm notes that limited partners are beginning to wield more negotiating power, and cautions private equity firms to consider CalPERS’ actions an “effective statement” on the power of limited partners.

More from Chief Investment Officer:

Private equity fund managers should take heed of the California Public Employees’ Retirement System’s (CalPERS) overhaul of its allocation to the asset class and focus on justifying the terms they present to clients, according to Preqin.

The research firm was responding to last week’s announcement by CalPERS that it wanted to drastically reduce the number of private equity managers it uses in order to cut costs.

“The decision by CalPERS may not immediately result in a drop in overall commitments to private equity funds,” Preqin said in a research note, “but serves as an effective statement to fund managers on the importance of justifying fund terms, as well as the power of the limited partner.”

The research firm said CalPERS’ decision reflected a wider concern among investors that fees were the biggest challenge to their investment in private equity. Roughly 58% of respondents to Preqin’s survey of US public pensions said fees were their chief concern.

It’s important to note that CalPERS is not cutting its allocation to private equity, only the number of PE managers it employs.

Preqin’s research note can be found here.

 

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CalPERS CEO: “The Companies We Invest In Have to Be Sustainable”

Calpers

CalPERS CEO Anne Stausboll sat down with the Financial Times for an extensive interview last week.

She talked about her push to make CalPERS an agent of change on social and environmental issues, including the use of shareholder power to engage with companies about sustainable business practices.

Here’s that excerpt, from the Financial Times:

Where Ms Stausboll is most passionate about the power of Calpers to make a difference is in the social and environmental sphere. A vegetarian on moral grounds since her university days, she began her career as a lawyer fighting for equal pay for female workers. On her way to the top she has moved back and forth between Calpers and Californian government, working as deputy to the state treasurer, Phil Angelides, at the turn of the century, when he was pushing for US public pension funds to use their power as shareholders to encourage greener business practices.

Today, Calpers is urging corporations to assess the risks that climate change pose to their businesses; it will be putting motions to shareholder meetings demanding as much. The idea is these shareholder resolutions will be a not-so-subtle nudge to executives to push for more environmentally friendly practices, not just at oil and gas companies but in the insurance sector, in agriculture and across corporate America.

“Our portfolio has to be sustainable for decades and generations, and . . . to make the portfolio sustainable, the companies we invest in have to be sustainable,” she says.

The interview also covers CalPERS’ push for corporate board diversity, the fund’s corruption scandal and its quest to reduce investment expenses.

Read the full interview here.

 

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CalPERS Put Its Money to Work in India in 2014

India

The Canada Pension Plan Investment Board, among other pension funds, has been vocal about making India part of their long-term investment strategy.

CalPERS hasn’t announced it from the top of the hills, but the numbers reveal that the country’s largest public pension fund is also taking considerable interest in India.

CalPERS increased its exposure to India by over 33 percent in 2014.

From VC Circle:

The California Public Employees’ Retirement System (CalPERS), one of the top public pension funds in the US, saw its exposure to assets linked to Indian currency rise by over a third to $1.7 billion in the fiscal ended on June 30, 2014 as compared to $1.27 billion in the year ago period, according to the annual financial report of the company.

Almost all of this was due to changes in fair value of assets in the equity securities bucket from $885 million to $1.3 billion. The value of the real assets, representing primarily real estate assets, shrunk marginally.

This data represent investment securities of all CalPERS managed funds, including derivative instruments that are subject to Indian rupee foreign currency risk.

It did not list any quantum against PE assets in India and it could not be ascertained if this is due to its forex hedging over dollar denominated offshore funds or it has actually disassociated itself with India-focused PE funds.

But CalPERS does counts itself as an investor in several global PE funds investing in India including some in their regional funds. These include Blackstone, KKR, Carlyle, TPG, Clearstone, SAIF Partners, etc.

CalPERS manages over $300 billion worth of pension assets.

 

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CalPERS Is Cutting Its Private Equity Managers, But That Doesn’t Mean It’s Breaking Up With PE

Calpers

CalPERS announced this week that it was cutting down the number of private equity managers it employs – possibly by as much as two-thirds.

The change comes in the name of cutting costs. A similar rationale was used when the pension fund decided to exit its entire hedge fund portfolio last year.

But unlike hedge funds, private equity will remain a significant part of CalPERS’ investment strategy going forward.

From the New York Times:

Calpers is not planning to significantly reduce its allocation to private equity, though it may redistribute it, Joe DeAnda, a Calpers spokesman, said in an email. He said the pension fund may increase its allocation to individual private equity managers as it culls the number of managers.

As of October, Calpers had $31.2 billion invested in private equity, or about 10.5 percent of its overall portfolio, according to the most recent disclosure. It aims to have 10 percent of its portfolio allocated to the strategy.

[…]

When it comes to private equity, Calpers is also trying to reduce costs. But its approach is more subtle.

Réal Desrochers, the pension’s head of private equity since 2011, announced in late 2013 that Calpers aimed to reduce the number of managers to as few as 100. (DealBook reported on it here.)

In a presentation to the Calpers investment committee in December that year, Mr. Desrochers discussed his review of the pension fund’s private equity portfolio. It included 389 managers at the time.

“I think this portfolio should have — given the size where we are — it should be probably around 100, 120, something like that,” Mr. Desrochers said. (See the 29:15-minute mark in this video.)

In other words, this move has been in the making for a long time.

CalPERS allocates about 10 percent of its assets towards private equity.

 

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CalPERS Board President Feckner Re-Elected to 11th Term

board room chair

The president of CalPERS’ board of administration, Rob Feckner, has been reelected to his 11th term. The term is one year long.

The board held the vote on Tuesday.

Feckner has sat on the board since 1999.

More from the LA Times:

During his long tenure, Feckner has steered CalPERS away from sometimes strident, anti-corporate activism; backed a campaign that successfully defeated a 2005 initiative that would have reduced some pension benefits; and helped the nearly $300-billion fund recover billions of dollars in losses from the recession of 2008-09 and its aftermath.

He also worked to clean house and overhaul policies in the wake of a 2009 bribery and corruption scandal that resulted in federal criminal charges being filed against two former CalPERS officials, a board member and chief executive.

“In the past few years, we have many accomplishments to be proud of,” Feckner said in a statement released by CalPERS, “but there’s still much more to do to ensure we provide secure retirement and health benefits to California’s hard-working public employees.”

Among those challenges is a potential 2016 proposed ballot measure that would allow cities and local governments to cut pension benefits for current employees. The board is expected to oppose such a measure.

Another development from Tuesday’s meeting: the board elected Henry Jones to the vice president position. He is replacing Priya Mathur, who was stripped of that position after repeated violations of financial reporting laws.

CalPERS Looks to Cut Two-Thirds of Private Equity Managers

cutting a one dollar bill in half

As part of its quest to reduce overall costs, CalPERS announced on Monday that the fund would be cutting the number of private equity managers it employs.

The cuts could be deep – the pension fund currently has 291 such managers, but that number could fall to below 100.

More from ai-cio.com:

Eliopoulos told the Financial Times he would use “every possible lever” to cut costs, and indicated that the number of managers CalPERS uses for private equity could fall below 100, from 291 currently. He voiced a desire to team up with other investors on big deals

“By having fewer managers, at larger scale, we will be able to reduce our overall costs,” Eliopoulos said.

However, there are no signs to indicate that CalPERS will reduce its overall exposure to the asset class, as it has with hedge funds. Eliopoulos said he wanted to “make sure we still have access to the talent that we need”, and the pension is currently advertising for a portfolio manager for its Sacramento, California-based private equity team.

The decision to create a more concentrated portfolio reflects a growing trend in the sector: Larger, established managers are finding it much easier to raise cash for new funds than newer players.

Recent research from Preqin showed that funds launched last year by managers new to the private equity sector accounted for 7% of the $486 billion raised in 2014, the same proportion as in 2013.

CalPERS invests about 10 percent of its portfolio in private equity.

 

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