CalPERS: Investments Up, Governance Down … for the Count

LOS ANGELES

EASTSIDER-CalPERS recently trumpeted that they got an 11.2% return on investments this year, which should make everyone feel good about their investment portfolio, even though it was less than 1% last year, and far from hitting the 7% average rate per year that they assume. 

 

What was missing, in true CalPERS fashion, were a few “not so nice” facts conveniently buried under their claims of how wonderful they are. In a minute, we’ll take a look at a few of the glaringly obvious contretemps. But before that, a couple of tidbits yours truly gleaned from watching the videos from the June Board Meeting, a truly painful act. 

First, I looked at the June 19 video of the Board of Governance Committee, where General Counsel Matthew Jacobs was the staff member, and clearly having a good time being in charge. But what I didn’t see or hear was a discussion about little things like the issues they were going to cover. Or any real questions by the Committee about anything at all. 

Second, I watched and listened to the video of their June 21 Board of Administration meeting, as JJ Jelincic went over step-by-step what had happened to him, while the entire Board sat stone-faced, making no eye contact, and unanimously declining to rebut one of the most crooked and incompetent bits of character assassination I’ve ever heard, led by Feckless Chair Feckner and Board member William J. Slaton. Absolutely no comment by Mr. Jacobs, who last I checked had a valid license to practice law in California; Marcie Frost seemed to be carefully out of camera range. 

In fact, Ms. Frost’s Report was an exercise in public relations rhetoric rather than a real administrative report on the workings of CalPERS. It’s enough to make me wish for the return of Anne Stausboll. 

Where’s the mention of a class-action lawsuit over an increase in fees for long-term care? 

That’s right. A judge in Los Angeles recently cleared a class-action lawsuit for trial over huge increases in fees for long-term care. The basis of the suit is breach of contract covering about 130,000 folks. 

So what did CalPERS do? They renewed LTCG Consulting as administrator of their Long-Term Care program. That’s right. Nowhere in their horsepuckey PR Release, which you can read here, can you find any mention of the above inconvenient facts. 

The staff even got Priya Mathur, Chair of the Pensions & Health Benefit Committee, to front for the press release. If we needed an example of staff running the show with an anesthetized Board, here’s a cool example. 

Using attorney-client privilege to hide shoddy review of Private Equity, again. 

Lest General Counsel Jacobs rail against me for releasing a document covered by attorney-client privilege, let’s take a look at a few facts. 

First, the report in question is a fairly useless consultants’ “review” rather than an honest to gosh audit which drills down and looks at source documents. The tame consultant was FTI Consulting, which itself has a statutory conflict of interest -- one of the cherry-picked Private Equity firms reviewed was Apollo, which just happens to be a client of FTI Consulting. Hey Mr. Jacobs, did anyone check on that or let the Board know? Really. 

Second, FTI Consulting is so stupid that they shared the report with another public pension fund, LACERA (LA County Employees Retirement Association) in order to make a pitch for doing business with them. Golly gee, poof goes attorney-client privilege. Did anyone tell the Board about this shining example of ethics and professionalism? Memo to Ted Eliopoulos: are you listening? Or were you the guy who got them the deal? 

Third, and most humiliating to the Board and Staff, it was this very report by FTI that sleazoid Board member William Slaton used to conspire with President Feckner in their efforts to dump JJ Jelincic off of the Board for “leaking.” Honest, even I can’t make this stuff up. Read the LA Times article here.   

Aside from anything else, the fact of FTI consulting being hired was public information in the first place, even if the contents of the report were confidential. If you want to read this whole depressing episode in all its glory, read this NakedCapitalism article. 

Massive copyright infringement with no oversight by General Counsel Jacobs 

You are going to love this one. Back in 2009, CalPERS launched an internal news site for employees.  For content, they published articles from major commercial news agencies. In full. Entitles such as the Wall Street Journal, New York Times, Los Angeles Times, Sacramento Bee, Washington Post, Bloomberg, Associated Press, Reuters, and Pension & Investments

So something like 50,000 articles were pirated for the 2000 plus CalPERS employees and Board members over the years. Unfortunately for CalPERS, the intrepid investigators at NakedCapitalism were on the case, and outed them in June of this year

News flash for General Counsel Jacobs. Where were you? Even as you suppress most CalPERS information using the shield of attorney-client privilege? Asleep at the wheel, mayhap? Was an apparently innocent reference you made during the June Board of Governance Committee a reference to cleaning up your act after the horse had left the barn? By amending the policies? Without telling us about it?  

I wonder how much this little boo boo is going to cost us CalPERS beneficiaries and taxpayers. 

The Takeaway 

This is a Board of Directors that is totally captive to their General Counsel and Executive Staff. They either don’t know or don’t care about massive misstatements or outright prevarications made by staff about the Fund, even as they pretend to be responsive to their fiduciary obligation to us. Instead, they give a standing ovation to Investment Chief Ted Eliopoulos as he shucks and jives the Board as their savior from the frothing masses out to get CalPERS. And oh, by the way, how about a raise? The details are here.    

Hats off to the Naked Capitalism blog with their financial services industry acumen and their willingness to bird dog the nation’s largest public pension fund. And a sincere thanks to JJ Jelincic for his willingness to actually ask the questions that every single one of these Board members should be doing, assuming they even understand the ethics of fiduciary responsibility.  

Instead, it’s evidently okay to hire an outside fiduciary counsel who is conflicted and was a party to the Marin lawsuit which could eliminate the California Rule and destroy the underpinnings of our pension Fund. It’s evidently also okay to allow or even initiate the railroading of any member of the Board who actually asks questions and demands answers -- just ask JJ Jelincic. And don’t ask Messrs. Jacobs, Feckner, or Slaton. 

Fortunately, in September the beneficiaries of CalPERS will have an opportunity to weigh in on two Board seats. Potentially, it will be a start to try and elect at least two people who can come in with a fresh outlook and demand meaningful oversight of the staff and the Fund. 

If we want to keep CalPERS’ defined benefit plan for the 1.5 million beneficiaries and families, the governing Board better straighten up and fly right to convince increasingly skeptical taxpayers that it is possible to run an open, transparent, and fiscally responsible organization. Not governance by an obfuscating Executive Committee and not burying reality under attorney-client privilege.

 

(Tony Butka is an Eastside community activist, who has served on a neighborhood council, has a background in government and is a contributor to CityWatch.) Edited for CityWatch by Linda Abrams.

-cw

BLOG COMMENTS POWERED BY DISQUS