But we also have Meng’s unreported stock trades. And Meng’s arrival happened to coincide with a big spike in personal trading violations, which CalPERS attempted to minimize by saying they came mainly from one person.
What if it turns out that the Olson report showed that Meng was a very active trader the entire time he was there? There is no way CalPERS could suppress this information, since it was required to have been reported on the Forms 700.
This would be hugely embarrassing to CalPERS, in that it would show it had hired a CIO who didn’t have his full attention on his very big ticket say job. And it would be vastly worse if Meng as head of the investment operation had been routinely violating SEC requirements for trade pre-approvals to prevent insider trading.
This possibility seems even more likely when you look at the board transcript below. Marlene Timberlake D’Adamo droned on and on and on trying to justify CalPERS not having reviewed Meng’s Form 700 to see if it looked internally consistent and/or matched up with his trading records. At first I thought this was to exhaust the board and dissipate their energy so they’d not be as persistent about their issues when they finally got the mike. But it may also be that the compliance department was clearly remiss in not reviewing Meng’s Form 700 by virtue of him being an active trader. And if he indeed was the person who’d made the big personal trading violations, that would almost mandate reviewing his Form 700.
In fact, all of the damaging information that got Meng so upset that he quit was public, and it all came directly from or was generated by Meng.
Yet the CalPERS board acts as if it’s the victim of internal saboteurs. As the transcript shows, CEO Marcie Frost and her key allies on the board, Board President Henry Jones and board member Rob Feckner repeatedly and falsely present Meng as a victim of secrets having been tossed over the transom to the press. Not only was everything that embarrassed Meng out in the open for competent reporters to write up, but in at least one and arguably two cases, Meng’s defensiveness made his situation much worse.
As we’ll show, Frost used the bogus idea that CalPERS is full of traitors as an excuse for continuing to keep the board in the dark about crucial matters like Meng being investigated for his financial conflict of interest. Frost and Feckner also claim that Meng believed that his bad press was due to saboteurs. That suggests that Frost and other senior staffers stoked Meng’s paranoia and helped precipitate his departure.
Despite having the most heavily staffed and luxuriously paid investment office of any public pension fund, CalPERS scored the worst investment returns of any of 34 funds tracked by Pensions & Investments.
As you can see at the Pensions & Investments site, CalPERS return for fiscal year 2020-2021 was 21.3%. The next lowest was tiny Kern County, more than two and a half points higher, at 23.9%. CalPERS’ Sacramento sister CalSTRS delivered 27.8%. The stars were Texas County, at 33.7&. New York Common, at 33.6%. San Bernardino County, at 33.3%, Oklahoma Teachers, at 33%, and Oklahoma Firefighters at 31.8%. Mississippi PERS came it at 32.7%, but that was gross of fees. Nevertheless, five funds earned a full 10% in investment returns more than CalPERS, and the pension fund arguably the most similar to CalPERS in terms of scale did more that 6% better.
That extreme laggard result also fell short of CalPERS benchmark of 21.7%. Recall that investment expert Richard Ennis explained at length that public pension funds and their consultants devise their own benchmarks, and they not surprisingly wind up being unduly forgiving
An earlier paper by Ennis found that even though nearly all public pension funds generated negative alpha, as in they actively destroyed value, CalPERS was one of the worst, coming in at number 43 out of 46, with a stunning negative alpha of 2.4%.
A plan by the California Public Employees’ Retirement System (CalPERS) to run its own multibillion dollar private debt investment program is dead for now after the state’s Senate Judiciary Committee rejected a bill that would have allowed the pension system to keep borrowers’ closely guarded financial information confidential.
The rejection by the committee last week is a major setback for the $469 billion pension system. CalPERS officials had planned to give out as much as $23 billion to companies seeking loans in the private debt market in an effort to boost financial returns for the system.
A day after the legislative committee’s vote, CalPERS Board Vice President Theresa Taylor asked at a board meeting whether the pension system could create an asset allocation that would allow it to earn its assumed rate of return without the in-house private lending program. Its current rate of return is 6.8%.
CalPERS does not need legislative permission for its investment program, but it needed state lawmakers to carve out an exemption to the state’s public disclosure laws to create the private debt program.
Jelincic is challenging CalPERS’ dubious denials of two different Public Records Act requests he made. One focuses on impermissible secret board discussions shortly after Chief Investment Officer Ben Meng’s sudden resignation last August. The filing not only calls for these records to be made public but also demands that board members be released to discuss all the matters that CalPERS impermissibly covered in the August “closed session”. The second involves CalPERS’ continuing efforts to hide records showing how it overvalued real estate investments by $583 million. Yet CalPERS not only has said nary a peep about bogus valuations are larger than the total amount it was slotted to invest in a mothballed solo development project, 301 Capitol Mall, but it continues to publish balance sheets that include the inflated results.
We predicted that CalPERS would be be even more inclined than usual to fight these Public Records Act requests because the filing seeks remedies beyond release of the records. First, it requests that CalPERS be found to have violated the Bagley-Keene Open Meeting Act. Second, to the extent that the judge rules that the board discussed items in closed session that should have been agendized for and deliberated in open session, the suit asks that board members be permitted to disclose the contents of those particular discussions in public. Third, the filing calls on the court to require that CalPERS make video and audio recordings of all closed sessions and keep them for five years (this is something that CalPERS currently does but this obligation is meant to shut the door to “the dog ate my disk” pretenses down the road.)
The city [Chico] has been receiving more sales tax, property tax, developer fees, and Utility Tax revenues every year as development brings more people to Chico. Instead of maintaining and improving infrastructure, Staff has poured these funds into their pension deficit, $11,500,000 this year, by 2025, $13,000,000. This money is allocated from all the department funds, at the expense of infrastructure and services.
Instead of pursuing new taxes that will hurt our local economy, council needs to switch from CalPERS’ defined benefit plan to a defined contribution plan, like 401Ks. Why should the taxpayers but never the employees bear the burden of the risks taken by CalPERS? The POB scheme, which Dowell admits is “gambling,” puts ALL the burden on the taxpayers, forever. Any new revenues will go to the pension obligation first.
To justify the rate increases, CalPERS asserts that there is nothing problematic with the program, other than the usual suspects of low interest rates and unexpected policyholder behavior, issues that all long-term care providers have faced. But that is, at best, a half-truth.
While all other long-term care providers have faced the same challenges, there is no evidence that any other insurer in the nation has responded with premium increases like CalPERS. For example, the Federal Long Term Care Insurance Program has raised rates as much as 150%. For commercial policies, premiums rose up to 75% for UNUM Group in some states, while in California premiums for Mutual of Omaha policy premiums rose 20%, Transamerica premiums rose 25%, and Thrivent premiums rose about 37%.
During the past two decades, roughly the timeframe of the policies subject to the lawsuit, inflation has risen 49% and the cost of long-term care services about 120%. The chart below shows actual policy rates and the initial policy rate along with inflation and long-term care trends.
What you see in that graph is a data point for each of the plans I know their asset allocation for, with the median, 25th percentile, and 75th percentiles marked out so you can see the allocations increasing.
That pattern does not make me feel good.
Allocating more to alternatives doesn’t seem to get asset managers higher returns. But the group is generally sliding upwards in their allocations, and I’m very unhappy about this.
Walters’ piece has been picked up by the Mercury News and other in-state papers. Since the bill has yet to go to the Senate, his intervention will make it much harder for Sacramento insiders to simply waive the legislation through and pretend they didn’t know about its rancid features.
We wrote up last week in part because the Judiciary Committee staff took the unusual step of sharply questioning whether CalPERS could and should be trusted with the powers it would provide. CalPERS wants to make loans and be exempt from disclosure…including who got the loan, in what amount, what the terms were (such as interest and collateral). The latter is important not just to determine if CalPERS is making proper credit judgments but also to see if it is handing out sub-market loans to cronies. There’s a proud history of this sort of thing. Remember, for instance, the “Friends of Angelo” scandal, when Countrywide gave out mortgages on extremely favorable terms to powerful politicians including Senate Banking Committee chair Christopher Dodd (D-CT), and Senate Budget Committee chair Kent Conrad.
Similarly, the reason yours truly has not been an advocate of public banks is they were tried in the US and virtually all failed. Most states and even some cities had them. All save North Dakota’s were eventually shuttered due to large-scale corruption and losses. I have not seen any of the proponents of public banks in the US demonstrate any awareness of their history of becoming piggy-banks for local notables, much the less recommend how to stop that from happening again. What CalPERS is proposing is an even more degraded version of the old, crooked, insider-controlled public banks.
Assembly Bill 386 sailed through the Assembly Judiciary Committee last week on a unanimous vote with virtually no discussion about its provisions.
Potentially it opens the door to insider dealing and corruption in an agency that’s already experienced too many scandals, including a huge one that sent CalPERS’ top administrator to prison for accepting bribes.
CalPERS, which is sponsoring the bill with support from some unions and local governments, claims that the exemption is no big deal since the money it lends through “alternative investment vehicles” such as venture capital funds and hedge funds is already partially exempted from disclosure.
However, there is a big difference. Using outside entities to invest means they have skin in the game. Direct lending by CalPERS means that its board members, administrators and other insiders would be making lending decisions on their own without outside scrutiny.
On the eve of President Joe Biden’s virtual climate change summit with approximately 40 other world leaders and the fifty-first anniversary of Earth Day, a new alliance of 160 financial institutions was formed to achieve net zero by 2050 or sooner.
The Glasgow Financial Alliance for Net Zero (GFANZ) consists of three separate groups representing different sectors of the financial universe — the Net Zero Banking Alliance (NZBA), comprising 43 banks from 23 countries including Bank of America, Citi and Morgan Stanley in the U.S.; the Net Zero Asset Managers Alliance of 87 firms, including BlackRock, Vanguard, Allianz Global Advisors, Invesco and State Street Global Advisors and Trillium Asset Management, which joined Wednesday; and the 37-member UN-Convened Net Zero Owners Alliance, which includes the David Rockefeller Fund and the California Public Employees’ Retirement System (CalPERS).
Let’s look at other reasons why allowing CalPERS to make secret loans is a terrible idea.
CalPERS and CalSTRS are already major investors in private debt, via private debt funds, so AB 386 is unnecessary.CalPERS is already #16 in the world and CalSTRS, #30. Both giant funds have demonstrated that California’s disclosure laws aren’t an impediment to making this kind of investment. It should not be surprising that no other California public pension fund is supporting this bill.
There’s no good reason to create an internal team to do private debt investing. Plenty of experts have been urging large private equity investors like CalPERS to bring private equity investing in house for years. First, the fees and costs are so eye-popping, at an estimated 7% per year, that cutting that down to say 2% or 3% means that a relatively newbie investor like CalPERS could still fall a bit short compared to industry average gross returns and still come out ahead on a net basis. Second, industry experts also confirm that there are many seasoned, skilled professional who would trade a less pressured life (particularly the costs and stresses that relate to regular fundraising) for less lavish pay.