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Tue Dec 1, 2015, 11:13 AM

Scandal at CalPERS

CalPERS Board, Scandal-Ridden Fiduciary Counsel, Plan to Break California Law in Effort to Silence Board Member for Asking Too Many Questions, Seeking Records
Posted on December 1, 2015 by Yves Smith

The starkest proof of how CalPERS’ board is willing go to extreme, and in this case, illegal steps to defend staff rather than oversee it came in its Governance Committee meeting last month. We’ve chronicled how the board fell in line with recommendation by staff and its new, tainted fiduciary counsel, Robert Klausner, for fewer board meetings, even though CEO Anne Stausboll offered no factual support for of her assertion that her subordinates are overworked or that she has considered, much less exhausted, alternatives for streamlining the process or increasing staffing. Moreover, to the extent that board meeting take a lot of employee time, Stausboll’s stage management of the monthly board meetings via illegal private briefings is a major contributor.

In the next section of this board meeting, Klausner and most of the board participated in what one observer called a “hating on JJ Jelincic” session. Board member JJ Jelincic has engaged in what is an unpardonable sin: he asks too many questions at board meeting and occasionally requests documents from staff. If you’ve looked at board videos (as we have) the alleged “too many questions” are few in number save when staff obfuscates and Jelincic tries to get to the bottom of things.

This section of the Governance Committee meeting clearly shows that the board, aided and abetted by Klausner, is in the process of establishing a procedure for implementing trumped-up sanctions against Jelincic, presumably so as to facilitate an opponent unseating him in his next election. But Jelincic’s term isn’t up until 2018, so from their perspective they are stuck with an apostate in their ranks for an uncomfortably long amount of time. Part of their strategy appears to harass him into compliance with the posture the rest of the board, that of ceding authority to staff and conducting board meetings that are largely ceremonial. We strongly urge you to watch the pertinent portion in full, and have provide a link and annotations at the end of this post.*

And what are Jelincic’s supposed cardinal sins, aside from being too inquisitive? That of using the California Public Records Act (California’s version of FOIA) to request documents that staff refused to produce. Mind you, Jelincic has used the PRA all of three times, in #2029 on June 8, 2015, #2077 on July 14, 2015 and #2084 (a duplicate of #2077, so it is not really a separate request, as far as staff effort is concerned) on July 16, 2015. And these requests were for a small number of recent, readily accessible records. By contrast, virtually all of our Public Records Act requests have been far more difficult to fulfill, so it is hard to depict Jelincic’s modest submissions as burdensome. ...................(more)



CalPERS Used Sleight of Hand, Accounting Tricks, to Make False “There is No Alternative” Claim for Private Equity
Posted on December 1, 2015 by Yves Smith

One of the striking elements of the November CalPERS private equity workshop for the ostensible benefit of its board was the length to which the giant pension fund was willing to go to distort data and abuse analytical methods to make the case that only private equity could offer the returns needed to meet CalPERS’ performance targets. These tricks were obvious to finance experts, which means that it is almost certain that CalPERS’ staff and the experts on its panel understood full well that they were pulling the wool over the board’s and public’s eyes.

The fact that CalPERS could not make an honest case for private equity suggests that there was no honest case to be made.

Here is a short form dissection of the CalPERS trickery from our illegally-curtalied public comments (more on the violations of the Bagley-Keene Open Meeting Act in a future post):


The overarching message of this workshop has been that private equity delivers returns that are superior and are necessary for CalPERS’ program. In other words, There Is No Alternative. As a result, CalPERS must submit to various indignities, such as lack of transparency, extremely high fees, and one-sided agreements, and outright corruption.

This message is false. There was considerable amount of slight of hand is at work in these slides, most important in the analysis of returns. Professor Batt touched on that a bit. Due to time limits I can give only a few examples.

First, in the opening section, you implicitly had a new benchmark introduced. The returns were compared against that of other asset classes in CalPERS’ portfolio. That’s not how private equity has been presented to the board in the past, nor is it what you will see in the next section when Réal Desrochers presents the annual program review.

If you look in the next section on pages 20 and 21 of his slides, you see that private equity has not met it benchmarks over the last ten years or in any sub-period. Worse, PE not only failed to meet its risk premium, it’s often failed to beat similar stocks. In other words, CalPERS is not being paid enough for the risks it is taking in private equity, and by a lot.

Let’s unpack this a bit. ..................(more)


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