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Category: Pension funds

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CalPERS requires contractors to disclose ties to agents

A new policy approved Wednesday by the board of the state's biggest government pension fund will require all vendors seeking contracts to publicly disclose whether they are paying a third-party agent to seal the deal.

Beginning Dec. 1, most contractors must reveal how much they paid an agent and whether the agent had any family or financial relationships with current or former board members. They also need to identify all payments, gifts, loans and other valuable items offered to board members or staff at the California Public Employees' Retirement System.

"This is another step toward ensuring that our business decisions are open and transparent," said CalPERS board President Rob Feckner. "We want all information put on the table so that we can be certain all of our decisions are based solely on their merits."

The new policies are in line with a series of efforts by the board of the $221-billion fund. The process began early last year after an influence peddling and bribery scandal involving pension fund investments spread from New York state to New Mexico and California.

The board of CalPERS responded by requiring all private equity and real estate investment managers it partners with to disclose the identities of so-called placement agents that helped them secure business with the fund. The disclosures revealed that one of those agents, Alfred J.R. Villalobos, was paid more than $40 million in commissions by CalPERS' investment partners.

Villalobos and his Nevada-based company are the targets of a lawsuit by California Atty. Gen. Jerry Brown that alleges fraud, selling securities without a license and illegal gift giving.

On Jan. 1, a new state law takes effect that requires all placement agents at CalPERS to register as lobbyists.

-- Marc Lifsher

CalPERS changes tactics on poor performers

The nation's largest government pension fund on Monday ended its decade-long policy of publicly criticizing poor-performing companies whose stock it owns.

Instead of posting an annual "name-and-shame" Focus List, the California Public Employees' Retirement System now plans to privately contact corporations that it is unhappy with.

"The Focus List has served us well by calling public attention to some of the worst market players," said CalPERS Board President Rob Feckner, "but the time has come for a more effective approach."

The $220-billion CalPERS, Feckner said, opted for the new approach after research showed that many of the companies in its portfolio already have been moving toward improved corporate governance practices that are in line with pension fund's interests.

That's backed with new research from CalPERS consultant, Wilshire Consulting of Los Angeles. Wilshire reported that 159 companies contacted privately between 1999 and 2008 significantly outperformed 59 companies on the public Focus List over five-year periods, compared with market benchmarks.

As part of its new corporate governance strategy, CalPERS will use a screening process to evaluate 500 companies in its U.S. stock portfolio and come up with a list of corporations whose behavior could be influenced for the better through a series CalPERS-sponsored shareholder resolutions at annual meetings.

"This approach expands our playing fields with bigger companies than before," said George Diehr, chairman of CalPERS' investment committee.

-- Marc Lifsher

CalPERS to invest $500 million in green portfolio

Turbines CalPERS, the country’s largest public pension fund, is looking to turn over a new, green leaf by investing $500 million in environmentally friendly companies.

The new green portfolio will be managed in-house by the $219-billion California Public Employees'  Retirement System. The money will go into firms that work to reduce greenhouse gas emissions, produce renewable energy, create clean water and waste options or support carbon trading efforts.

It’s a “more robust, quantitative strategy” that focuses on large-scale support of “positive change by top performers that have improved share value and also done good for the environment,” CalPERS board President Rob Feckner said in a statement.

Since 2006, the Sacramento-based pension system has invested $500 million through externally managed funds that explicitly avoid companies not considered eco-friendly.

The new strategy will use the HSBC Holdings Global Climate Change Benchmark Index -– which includes 380 securities –- as a model.

Through its Environmental Technology program, CalPERS has also fed $1.5 billion into private equity firms focusing on clean-tech companies.

The fund administers retirement benefits for more than 1.6 million public employees and their families. On Tuesday, it announced that its return on investments jumped 13.3% for the year ending in June.


CalPERS reports improved earnings

Clean-tech investment booms to $1.5 billion in second quarter 2010

-- Tiffany Hsu

Photo: Windmills in Maine. Wind power companies could soon see a piece of CalPERS' $500 million investment in the green market. Credit: Robert F. Bukaty /Associated Press

CalPERS reports improved earnings

The California Public Employees' Retirement System, the country's biggest government pension fund, closed out its 2009-10 fiscal year, reporting a net return on investments of 13.3%

The results for the 12 months ending June 30 represented a significant improvement from the 23.4% loss in the previous year during the worst recession since the Great Depression of the 1930s.

CalPERS ended the most recent fiscal year with a total portfolio worth $200.5 billion, substantially down from a record high of $260.4 billion on Oct. 31, 2007.

"This updated report indicates a gain of more than $40 billion since our turn-around from the lowest point of the recession in March 2009," said Chief Investment Officer Joseph Dear. "We also beat our benchmark of 12.95% and eclipsed return targets for every asset class except real estate. But even that asset class improved dramatically over what we reported in July."

CalPERS' reported significant gains in a number of areas: global fixed equity including bonds rose 20.4%; private equity 23.9%; publicly traded stocks up 14.4% and commodities, infrastructure, forestland and inflation-linked bonds up 8.7%.

Calperslogo Real estate investments dropped by 10.8% but did much better than an earlier estimate of minus 37.1%.

"These financial figures are good news for employers since investment gains will help mitigate increases in their contribution rates," said Dear.

The latest reported returns outpaced CalPERS' assumed target annual rate of return of 7.75%. However, pension fund officials are concerned that future returns can't be counted on to regularly exceed that level. The pension's board currently is considering cutting that assumed rate of return, which could translate into asking employers and employees to pay more.

CalPERS provides retirement security to 1.6 million active and retired state, local government and school employees and their families.

-- Marc Lifsher


California's pension system must be changed, Milken Institute report says

Elderly Wrapping up its State of the State Conference at the Beverly Hilton on Tuesday, the Milken Institute released a sobering look at California's pension system. Its conclusion: Dramatic changes are needed to cope with demographic trends and funding shortfalls.

"We're talking about a perfect storm: more state services needed for an aging population, a workforce that will spend more years in retirement than they did contributing to the funds, and a smaller ratio of working-age taxpayers and contributing state workers to pay for it all," said Perry Wong, director of regional economics at the Milken Institute.

Demographics play a big role. From 2000 to 2050, the number of seniors in California will triple, to 11.6 million in 2050. Seniors will account for about 20% of Californians in 2050, up from 11% now.

And the state's pension funds are already in trouble. In the next two years, the three major state pension funds will have obligations that amount to more than five times the state's revenue. The pension liability will triple by 2014, to $10,000 per working-age Californian, up from $3,000 in 2009. And public school enrollment will rise even as seniors depend more on Medi-Cal, increasing burdens on the state.

To deal with these rising costs, the state needs to raise the retirement age and increase employee contributions, the report recommends. It also will need to switch to a hybrid plan, in which a portion of the benefit is subject to market risk while a portion is guaranteed. Utah made this shift in March.

This could require some big changes in the way state employees view their pensions, the Milken report concludes. But something needs to be done as the population gets older and pension funds are obligated to make more and more payments.

"While the funding gap continues on its current trajectory, further delay is not an option," the report concludes. "The pension crisis is beginning to handcuff the state’s fiscal and financial planning process, and the situation has to come to a head."

-- Alana Semuels

Photo by Akash Kurdekar via Flickr


Political power player Darius Anderson under scrutiny related to pension deals

Darius Anderson is a well-known player in the high-powered and often-overlapping worlds of California business, lobbying and politics.

No stranger to campaign finance, he’s raised millions of dollars for candidates over the years, mostly for Democrats. Citing that expertise, state Fair Political Practices Commission Chairman Dan Schnur appointed Anderson this week to a prestigious panel that will examine overhauling state campaign finance disclosure laws.

Anderson, 45, brings a “valuable perspective” to the panel because of his “professional work as a practitioner” and as a fundraiser and lobbyist, Schnur said.

Others aren’t so sure it was a good choice.

Anderson and his Sacramento lobbying firm, Platinum Advisors, recently paid $500,000 to settle claims by New York Atty. Gen. Andrew Cuomo stemming from a yearlong investigation into so-called pay-to-play practices in city and state pension fund investment partnerships.

And federal and California law enforcement officials also have looked into Anderson’s role as broker of public pension deals, though he has not been accused of any wrongdoing.

“The appointment certainly raised my eyebrows, and upon hearing further details, it raises questions in my mind,” said Derek Cressman, the western regional Director for Common Cause. “I think we need to pay close attention to the role he plays on this commission.”

Anderson through a spokesman declined to comment either on the reported probe by state Atty. Gen. Jerry Brown or on his appointment to the 25-member task force formed by the Fair Political Practices Commission.

Schnur said he was “aware of the investigation” in New York and inquiries about Anderson made by California attorney general’s lawyers. Anderson, he noted, has not been charged with any wrongdoing in either state. He said that the goal of the selection process was “to establish a task force that was balanced between those who had devoted their time as political reformers and those who had worked in the field of practical politics.”

Anderson’s influence is felt in political, business and philanthropic circles in Sacramento, San Francisco and Los Angeles.

Continue reading »

The new class warfare: Private vs. public worker

Class warfare in America used to mean rich versus poor.

Now, that age-old social conflict is taking a back seat to a new one: private sector versus public sector.

Many private-sector workers have long considered it their civic duty to question how the public sector spends their tax dollars, of course. But nothing could have prepared them for the Los Angeles Times’ revelations last month of the absurdly monstrous salaries of Bell city officials.

If we’ve reached the tipping point in the political battle nationwide to rein-in pay and benefits for public-sector workers, credit Bell City Manager Robert Rizzo, the $800,000-a-year man.

To be sure, pressure to restrict public-sector compensation has been building for years. Millions of private-sector workers have seen their benefits slashed by corporate America while many state and local governments have gotten more generous with their own workers -- at taxpayers’ expense.

Bellprotest Over the last decade, politicians (like the late Keith Richman in California) who sought to reform public-sector benefits, particularly pensions, argued that promises made to government workers in economic boom times no longer were affordable. But the urgency was lacking.

That has changed with the budget crises faced by municipalities across the nation since the economy plunged in 2008 -- and with soaring unemployment in the private sector.

My colleague David Zahniser noted in a story Tuesday that the city of L.A. is projecting that retirement-benefit costs for its workers will rise by $800 million over the next five years. By 2015 those expenses for current and future retirees could eat up nearly one-third of the city’s general fund.

Union officials and other worker advocates understandably fear that public-sector employees will be unfairly victimized. Most, after all, don’t get rich in their jobs.

"I highly recommend that we go very slow on this issue," Peter Repovich, director of the Los Angeles Police Protective League, which represents rank-and-file officers, told Zahniser. "It seems there's a lot of group-think going on across the state and the nation" on the issue.

And as the Times' George Skelton has noted, it isn't as if state workers in California haven't already given something back. Mandated furloughs over the last year have meant a 14% pay cut for many.

But those who are pushing reform -- i.e., benefit cuts -- naturally see an opportunity to galvanize voter sentiment, as Reuters’ Jim Christie notes in this piece. The surge in news stories detailing public-sector benefits has left many private-sector workers with “pension envy,” as Christie puts its.

There’s more than just pension envy going on: Given the sad state of the job market, the economy has obliterated the old image of public-sector positions as lowly employment that most Americans wouldn’t want. Today, who wouldn’t want the relative job security of working for the DMV?

As for business owners and executives, joining the battle to cut public-sector benefits is a no-brainer.

Writing in the Los Angeles Business Journal this week, Howard Fine finds L.A. business leaders “increasingly alarmed about skyrocketing public-sector pension costs,” and fearful that they will face higher taxes or fees to maintain those benefits.

And something else: Hilda Sanchez, owner of Minuteman Press in Long Beach, told Fine, “When my employees read about the benefits that Long Beach city employees get, they realize they don’t have anywhere near those kinds of benefits. It affects their morale.”

There is the motivating force of true class warfare: If I can’t have this, why should you?

-- Tom Petruno

Photo: The scene at a City Council meeting in Bell last month, as residents protested city officials' mammoth salaries. Credit: Kevork Djansezian / Getty Images

N.Y. pension fund seeks class action suit against BP

New York state's pension fund, the country's third largest, is seeking to be named lead plaintiff in a possible class-action lawsuit against BP that's related to the oil spill in the Gulf of Mexico two months ago.

So far, neither of the two bigger California-based public retirement systems has indicated an interest in joining the effort.

On Wednesday, New York state Comptroller Thomas P. DiNapoli announced he had hired a law firm to start the process of seeking damages from BP caused by a 50% drop in stock value since the April 20 explosion at a deep-water drilling site.

"It's my duty to protect the interests of the fund and the retirees and employees who rely on it," said DiNapoli, who is the sole trustee of the $133-billion New York State Common Retirement Fund. "BP misled investors about its safety procedures and its ability to respond to events like the ongoing oil spill, and we're going to hold it accountable."

The New York fund owned more than 19 million shares of BP at the time of the disaster at the Deepwater Horizon drilling rig.

The country's largest pension fund, the $200-billion California Public Employees' Retirement System, said it currently owns about 60 million BP shares that have dropped in value by more than $240 million.

But CalPERS is not aware of the New York litigation, said spokesman Clark McKinley. The fund would deal with any potential complaints about BP through its normal corporate governance procedures, he said.

The $132-billion California State Teachers' Retirement System, which held BP stock worth $86 million on June 8, said it is not part of the New York legal action.

-- Marc Lifsher

CalPERS loses big on BP stock

After dropping a quarter of the value of its $200-billion portfolio during the recession of 2008 and 2009, the country's largest public pension fund is posting more big paper losses because of the massive 2-month-old BP oil spill in the Gulf of Mexico.

Since April 20, the 58 million BP shares owned by the California Public Employees' Retirement System have plunged in value by $285 million, dropping from $586 million to $301 million, according to an analysis by Bloomberg News.

BP-related losses for all U.S. pension funds have totaled $1.4 billion as the value of BP stock tumbled 47%, Bloomberg data show.

The oil giant's shares fell again on Tuesday, losing 65 cents, or 2.1%, to $29.68. The stock hit a 13-year low of $29.20 on June 9.

CalPERS, which invests broadly in nearly all major publicly traded stocks in the U.S. and in foreign markets, "intends to engage BP on corporate governance issues," said Pat Macht, the pension fund's director of external affairs.

"BP is on our radar screen," she said. "With our long-term investment horizon and our well-diversified portfolio, we are managing this going forward."

-- Marc Lifsher

Wall Street Roundup: CalPERS gears up. Swiss bank fears

CalPERS gears up. With shareholder rules about to change, CalPERS is getting ready to take a much more active role in the boards of companies it owns shares in, the Wall Street Journal reports. 

Swiss bank fears. Customers at Swiss banks are worried after the Swiss government voted to give the U.S. government information on thousands of customers who have avoided taxes by putting their money in secret Swiss accounts. 

Goldman's smallest problem, As if Goldman Sachs didn't have enough to worry about, now it is fighting an outbreak of bedbugs in its offices.

-- Nathaniel Popper

Consumer Confidential: Free checking, lower prices, needy CalPERS

Here's your thrill-ride Thursday roundup of consumer news from around the Web:

--I told you months ago that banks would respond to tighter regulation by throwing new fees at customers. So say adios to free checking. Looks like the banking industry is moving in lockstep to require minimum balances or use of other services if customers want to avoid checking-account fees. Otherwise, they'll pay for a service that's traditionally been free. Anyone want to vote on which industry is cheaper, banks or airlines?

--Was your shopping a little cheaper last month? Mine neither. But the Labor Department says consumer prices in May posted their biggest decline in nearly 1 1/2 years. The main driver was a drop in energy prices. Aside from a possible break at the cash register -- again, I haven't seen any -- this means inflation remains a distant prospect, which means the Fed should keep interest rates at bargain-basement lows. That'll keep money cheap, which should make Wall Street happy. The fiscal Circle of Life.

--Your tax money at work: The $202-billion California Public Employees' Retirement System -- a.k.a. CalPERS -- is asking our friends in Sacramento for an additional $600 million a year in funding to ensure that retired state workers get their full pension payments. CalPERS also wants school districts to cough up more than $100 million more each year. Not only is it kind of awkward to go hitting up taxpayers for extra cash (the state faces a budget gap of $19 billion), but the request highlights the challenge that public-sector pension plans everywhere face in meeting obligations. At what point, I wonder, will lawmakers find the wherewithal to address this particular issue?

-- David Lazarus


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