Saturday, December 31, 2011

CalPERS: A bunch of clowns or what? Part 2

Last post we looked at CalPERS sheer incompetence in investing as documented in a paper by Ang and Kjaer.  That paper briefly alluded to criminal activities but they deserve more than a passing glance.  The eye-popping criminal activities are far reaching and detailed in the 75 page report by Philip Khinda who was hired to investigate the scandal.  Highlights are summarized in the San Francisco Chronicle's article of March 20, 2011.

Here are some highlights:
"...CalPERS former CEO, Fred Buenrostro. While running the nation's largest pension fund for six years, until 2008, he was having his wedding paid for by a placement agent, getting free chips at a Las Vegas casino, allegedly forging documents and pressing investment staff "to pursue particular investments without evident regard for their financial merits." But with much regard to what his staff called "friends of Fred."

"Chief among them was former board member turned placement agent, Alfred Villalobos, whose now-bankrupt Nevada firm made $50 million as a middleman for investment firms looking to get a piece of CalPERS' business.  Villalobos ran the show, along with his "puppet," Buenrostro - as described by Buenrostro's wife and a former girlfriend - and other CalPERS board members. They included Chuck Valdes, an attorney with Caltrans, Kurato Shimada, who resigned from the board in August "to focus on personal matters," and Leon Shahinian, one of CalPERS' senior investment officers, who, "after years of apparently diligent performance ... seemed to lose his way."


"Citing the $800 million a year CalPERS was paying out in fees, the report concludes that "the excessive nature created an environment in which external managers were willing and able to pay fees at a level that bore little or no relationship to the services apparently provided by the placement agents."

These are some of the reasons we need to get the City of Sunnyvale and its employees out of CalPERS and onto a 401K like everyone in private industry.  CalPERS has since fired the CEO and cleaned up its act considerably. Nevertheless, as I will document later, these problems are endemic to the very nature of CalPERS and while periodically it can be cleaned up, ultimately it will fall into the same practices until the next big crash. 

I strongly urge that the City Council take whatever steps necessary to remove Sunnyvale from future dealings with CalPERS and put all new employees on a 401K.  Employees need to have a greater share in making up the CalPERS deficits since they are the ones most highly vested in preserving CalPERS.
Full Links:

SF Gate article:

Khinda report:

Ang and Kjaer:

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