SOMETIMES THE SYSTEM WORKS--Consider this an example of “sometimes the system works.” After all of the heat and light shined on the inner workings of CalPERS and CalSTRS, how the high-priced staff got taken to the cleaners and then fronted for the private equity partners who did it to them (and us), one elected official has actually stepped up to the plate -- John Chiang (photo left), California’s State Treasurer.
The Treasurer has issued a letter to the heads of CalPERS and STRS Investment Funds, notifying them that he wants to work with them to sponsor California legislation to clean up the Private Equity fee disclosure scandal. To quote in part from his letter, which is linked at the end of this article:
“Pension funds and other limited partners pay excessive fees to private equity firms and do not have sufficient visibility into the nature and amount of those fees. As fiduciaries, public fund trustees have a duty to maximize investment returns in order to ensure promised benefits are adequately funded and to minimize taxpayer costs....”
This is a big deal, and from my standpoint, kudos to one of the few elected officials in our state who actually listens to the troops, does his due diligence, and is willing to step up to the plate and do something about a major issue. I for one will remember his efforts to save taxpayer and beneficiary money the next time he runs for any public office, and would urge everyone else to do so as well.
After Treasurer Chiang sent his letter to the two agencies, it is reported that CalPERS has responded favorably through their staff, although CalSTRS evidently still has their head stuck in the proverbial sand. I can’t personally verify this as it was reported in a paid subscription website, Private Equity International, to which I declined to subscribe.
Either way, this is no time to be complacent -- there will be a meeting in Sacramento on Monday November 16 of the CalPERS Board of Investments (and I believe that there is also a November CalSTRS Board of Investments meeting, although only a generic meeting date of November 5-6 is listed. Agendas are not posted as I write this article.) These meetings are important, because neither agency can in fact support the Treasurer’s proposed legislation until it is “agendized” and voted on by the two respective Boards.
You can safely assume that there is the possibility of push back from the private equity folks and their camp followers. After all, they are charging enormous fees, as are their “consultant” buddies who come to validate how wonderful Private Equity is. If you see any of them showing up to testify, ask them how much they charge. Also we don’t know what, if any, deals there are between any of the Board members and/or paid staff, although I would hope that, if there were, they are now a thing of the past.
These private equity fees are not trivial. If you back them out of the actual earnings that the pension funds receive, the returns aren’t that great. For those who would like a taste of how all this stuff actually works, there’s a good article here.
And you can help. Remember, like most of the technically complicated and secret ways in which the financial services industry skims money, private equity fee arrangements only work until there is public disclosure. With the elimination of non-disclosure agreements, and adequate reporting and analysis, our public pension systems can only become stronger -- to the benefit of taxpayers and beneficiaries alike.
If you know anyone who can attend either of these meetings, or if you are a member of an agency covered by either CalPERS or CalSTRS, consider letting your agency and/or your collective bargaining representative know. Urge them to have someone show up at the Investment Board meetings to shine a light on the private equity presence. Believe me, folks rarely attend these gatherings who are not participants, and a room full of the public is a very visual way of providing support for the Treasurer’s initiative.
Finally, a big “thank you” to everyone who has weighed in on this issue -- like Treasurer John Chiang. Keep up the good work!
(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. Tony can be reached at [email protected]) Edited for CityWatch by Linda Abrams.
Vol 13 Issue 86
Pub: Oct 23, 2015