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Pension Funds

New CalPERS board member leery of private equity takeover

Margaret Brown asking questions about potential role of BlackRock in program

A newly elected CalPERS board member says the investment staff needs to be more transparent, criticizing specifically private negotiations between staff and money manager BlackRock (BLK) over management of the fund's $26 billion private equity program.

"We don't need another layer of fees," said Margaret Brown in a phone interview on the potential hiring of BlackRock.

The $345.1 billion California Public Employees' Retirement System, Sacramento, announced in a news release Tuesday that Ms. Brown, a facilities supervisor at a school district in Southern California, was the unofficial winner of a runoff election as member-at-large on the 13-member board. She had run against incumbent Michael Bilbrey.

Ms. Brown's criticism comes as CalPERS CIO Theodore Eliopoulos is expected to report early next year on a proposal to reduce fees in the private equity program. Options being explored included CalPERS engaging in direct private equity investments as Canadian pension plans do or handing over the program to an outside party like BlackRock.

Pensions & Investments reported in September that the fund was negotiating with BlackRock over a potential takeover of the program.

CalPERS spokesman Wayne Davis said in an emailed comment: "We look forward to working with Ms. Brown on these issues." BlackRock spokesman Brian Beades said in an phone call that the company would have no comment.

CalPERS paid private equity partners nearly $700 million in management and incentive fees in the fiscal year ended June 30, show CalPERS documents.

Ms. Brown also questioned the propriety of BlackRock's head of global active equity, Mark Wiseman, participating in a public discussion at a July retreat meeting on the future of the system's private equity program. Mr. Wiseman is the former chief executive of the now-C$328.2 billion ($255.2 billion) Canada Pension Plan Investment Board, a big player in direct investment private equity.

At the time Mr. Wiseman was making public comments, Ms. Brown said she wanted to know whether the negotiations between CalPERS and BlackRock were already underway. Mr. Wiseman did not comment specifically about a relationship between CalPERS and BlackRock at the meeting, centering his remarks on the direct investment private equity model and pitfalls CalPERS might encounter if it tried that direction.

"We need transparency here," said Ms. Brown.

She also said that she is concerned that CalPERS has not filled the vacancy of Real Desrochers, managing investment director of private equity at the pension system, who left in April.

Mr. Eliopoulos had said he does not plan to begin a search for a replacement until the direction of the private equity program is decided.

But Ms. Brown said leaving the position open can enhance the case to turn over the program to BlackRock because CalPERS can claim it does not have a leader of the program and needs outside help.