CalPERS and CalSTRS may be located just a river apart, but their paths diverge a bit when it comes to their processes for preventing conflicts of interest between the personal holdings of their top executives and their day jobs.
At the $417.3 billion California Public Employees' Retirement System, Sacramento, the current focus is on educating staff members on how to report their holdings in a statement of economic interests required by state law and how to avoid conflicts. It is up to those staff members to take responsibility to recuse themselves on matters that may involve a conflict between their personal investments and CalPERS investments, CEO Marcie Frost said in an interview in September.
"Just because you own a security does not mean there is a problem, unless there is a conflict" with the person's role at CalPERS, Ms. Frost said.
"The fact that you own a security is not an actual conflict. It depends on your role," she said.
If CalPERS' compliance and other team members notice a potential conflict in a person's statement of economic interests after conducting a review of the brokerage portion of the form, a team at CalPERS will reinforce the education the person received when he or she joined the system, Ms. Frost said. But CalPERS relies on each person's self-management of conflicts, she added. "If the person perceives a conflict, the person has to manage their conflict."
The board is currently discussing requiring, as a condition of employment, its next CIO to sell or place in trust securities that may present a conflict.
At the $253.6 billion California State Teachers' Retirement System, West Sacramento, its investments compliance unit helps staff avoid conflicts by coordinating ongoing education about tasks such as filling out the statement of economic interests and having staff participate in a personal trading program that requires them to link their brokerage account to the system that checks and, if necessary, stops investment transactions to avoid conflicts of interest with CalSTRS' portfolio, said Thomas Lawrence, CalSTRS spokesman.
However, CalSTRS cannot force the sale of assets by employees or officers. Mr. Lawrence said. "There is no legal authority to require a state employee to disencumber any asset.
"We can and do require compliance with applicable ethics and conflicts of interest laws."
CalPERS does require some investment staff to report personal trades and provide information on their own and their spouses' brokerage accounts, but it does not have an online reporting system.
