The $216.4 billion California Public Employees' Retirement System has quietly terminated 19 money managers that have been running its global equity portfolio since 2007, reallocating $17 billion handled by the managers to in-house management, CalPERS documents show.
The documents prepared for an Oct. 18 investment committee meeting refer to the former managers as “low-conviction, low-performing external managers.”
But the terminated firms have never been named and aren't in the presentation, sparing them the public humiliation of being axed by the nation's largest defined benefit plan. The managers were terminated during closed sessions, seemingly bypassing the transparency process that CalPERS executives now say is a hallmark of the organization.
This is in stark contrast to the Oct. 11 announcement by Sacramento-based CalPERS that it was “severing its ties” with Pacific Corporate Group LLC, a private equity firm that had a relationship with the pension fund for more than two decades, serving both as a consultant and investment manager.
CalPERS Chief Investment Officer Joseph Dear said in a statement that the end of the relationship and the hiring of a new manager would improve “performance, accountability and transparency with our partners.” (Aviva Capital LLC, a former joint venture partner with PCG, will continue to manage more than $1 billion in two emerging markets funds. Capital Dynamics Inc. is assuming management of CalPERS' Clean Energy & Technology fund, previously managed by PCG.)
Speaking under the condition of anonymity, sources familiar with CalPERS' decision said CalPERS officials felt they had to terminate PCG and publicize it because of a connection to placement agent Alfred Villalobos.
Mr. Villalobos, a former CalPERS board member who became a placement agent, helped PCG keep its contract with CalPERS several years ago, the sources said.
CalPERS public relations staffers said they would not respond to requests to interview Mr. Dear or other officials on the matter.
Mr. Villalobos is the subject of a lawsuit by California Attorney General Edmund “Jerry” Brown Jr., charging that Mr. Villalobos tried to bribe CalPERS officials to win investment contracts for his clients.
PCG has not been accused of any wrongdoing in connection with the lawsuit CalPERS filed against Mr. Villalobos and a co-defendant, former CalPERS CEO Fred Buenrostro, but the firm's connections to Mr. Villalobos are part of an outside investigation by Washington law firm Steptoe & Johnson LLP.
The law firm was hired by CalPERS to investigate the role of placement agent middlemen in helping money managers obtain contracts with the fund.
Sources said another concern is the agreement PCG made with New York Attorney General Andrew Cuomo last year to settle charges that affiliate PCG Corporate Partners Advisors II had paid kickbacks in order to win a $750 million investment from the $124.8 billion New York State Common Retirement Fund, Albany.
PCG officials admitted no wrongdoing but returned $2.1 million in management fees and agreed the firm would never use a placement agent again.
PCG officials would not comment on the CalPERS termination beyond a statement saying the firm had generated a net internal rate of return in excess of 23% in its 20-year-plus relationship while producing more than $3 billion in investment gains.