“It is a self-serving rhetorical device. There is no balance,” says the editorial. ”There is no full disclosure; actually, there is virtually no disclosure. CalPERS selectively presents only a few issues and then in only a limited way to its benefit, and it provides no significant data to back up its claims … if this were the financial disclosure website of a corporation, it certainly wouldn’t pass any minimum acceptable disclosure standard at the Securities and Exchange Commission. This is ironic in that CalPERS would certainly take issue with any corporation in its portfolio that maintained a similar one-sided website focusing on its financial or corporate governance performance.”
The CalPERS myths
December 28, 2009
CalPERS Responds, a new website created by the California Public Employees’ Retirement System, represents an effort to “spin” information on issues regarding its oversight of public employee benefits and pension benefit finance.
CalPERS created the website, www.calpersresponds.com, as it states “to educate — and separate fact from fiction — about issues and our response related to pensions, investments and national health care reform … We hope this information provides education, insight and clarity.”
The website falls far short on all of those objectives. It is a self-serving rhetorical device. There is no balance. There is no full disclosure; actually, there is virtually no disclosure. CalPERS selectively presents only a few issues and then in only a limited way to its benefit, and it provides no significant data to back up its claims.
In fact, if this were the financial disclosure website of a corporation, it certainly wouldn’t pass any minimum acceptable disclosure standard at the Securities and Exchange Commission. This is ironic in that CalPERS would certainly take issue with any corporation in its portfolio that maintained a similar one-sided website focusing on its financial or corporate governance performance.
Presented in the form of a series of “myths and facts,” CalPERS examines such issues as: it “cannot come back from billions in losses.”
The website responds: “At the market’s lowest point in 2008, CalPERS assets had dropped by $100 billion. Today CalPERS has regained $40 billion in five months, and in September, its market value of assets returned to the $200 billion mark …” It doesn’t tell the reader what the high-water mark was. In fact, CalPERS still hasn’t returned to its peak asset value of $248 billion as of June 30, 2007.
The site also doesn’t discuss the impact of the financial crisis on CalPERS’ actuarial funding level. The five state plans in CalPERS, for instance, were funded at between 79% and 91% as of June 30, 2008, according to CalPERS’ main website, http://www.calpers.ca.gov, and those figures don’t account for the overall market plunge since mid-2008, which would have worsened the funding level, even though the market has rebounded somewhat.
Like a lot of pension funds, CalPERS attempted to invest its way out of the dot-com crash and 9/11 market plunge. It may have been that drive to recover losses and build assets that led it to seek alternative investments. But they haven’t yet paid off.
In another “myth,” CalPERS responds to the charge that its uses “risky investment strategies and assumptions.”
In fact, CalPERS responds by saying, “Our consultants affirmed the soundness of our risk position in June 2009 … Our biggest on-paper losses, by far, were in public stocks that historically aren’t considered as risky as private equity and real estate, two asset classes that have outperformed stocks the past decade… In fact, the board’s new asset allocations slightly lowered the risk of the overall portfolio. It raised the target for private equity from 10 to 14 percent of the portfolio, and reduced the proportion of stocks in the portfolio.”
The website provides no information on CalPERS’ placement agent scandal that arose when it was revealed that money managers had paid CalPERS-connected placement agents to market their firms to the fund, or the losses associated with the private equity investments associated they made.
CalPERS has lost about $420 million in its investment in Apollo Global Management, a private equity firm, with the system’s $600 million investment recently valued at $180 million, according to a Pensions & Investments Dec. 14 story, which noted in addition CalPERS has more than 11% of its private equity exposure in Apollo-related investments.
The website fails to mention that Apollo and other private equity firms paid Alfred Villalobos, a former CalPERS trustee, and his placement agent firm, ARVCO Financial Ventures LLC, more than $70 million for successfully marketing investments to the system. CalPERS has disclosed this elsewhere.
CalPERS Responds doesn’t disclose specific reasons for the investment losses, basically attributing them to the general misfortune of market decline, rather than any specific investment decision. There is a lack of accounting and accountability in its myths-and-facts series.
The website’s home page has a link to the main CalPERS website, which has detailed information about the system and its investments, but no specific link for any of the myth and facts to promote a fuller understanding of the selective issues CalPERS raises.
The CalPERS Responds site is virtually useless. Instead of a separate website on selective issues, CalPERS should bolster its main website to make sure all the information about its investments and problems is as full and complete and timely as it could be. As a fiduciary, that is its obligation.
