CalPERS Severs Ties With Pacific Corporate Group Over Pay-to-Play

Amid criticism of CalPERS' poor returns and conflict-of-interest questions, the biggest US public pension said it is severing its 21-year relationship with Pacific Corporate Group as it revamps its private-equity program.

(October 12, 2010) — The $216 billion California Public Employees Retirement System (CalPERS), the nation’s largest public pension plan, said Monday it is “severing its ties” with the Pacific Corporate Group (PCG) over issues of pay-to-play and has found new managers for the $2 billion committed to five PCG funds.

PCG, a financial adviser with connections to a former CalPERS board member charged with fraud, was the first pension-fund adviser to settle with New York Attorney General Andrew Cuomo. To avoid corruption charges, the group returned more than $2 million in fees in 2009 to the state’s pension and agreed to abide by a new code of conduct. A person familiar with the matter told the Wall Street Journal that PCG’s business relationship with Alfred Villalobos was a concern for CalPERS. Villalobos, who was sued earlier this year by California’s attorney general, is a former CalPERS board member who became a middleman helping firms get business from pension funds.

According to a statement from CalPERS, Aviva Capital LLC (Aviva), a former joint venture partner with PCG, will continue to manage $1.3 billion of invested and committed capital in two emerging markets investment vehicles for CalPERS – Global Opportunities Fund 1 and 2 – under an independent investment team, and will be announcing a new name for the company in the near future. CalPERS has also tapped Capital Dynamics to take over management of its Clean Energy & Technology fund, which was launched in 2007 and previously managed by PCG.

Chief Investment Officer Joseph Dear commented on the Sacramento-based system’s overhauling of its private-equity strategy following the fund’s involvement in the scandal relating to payments to placement agents, third parties who help money managers find business. “We’re pleased to continue to support the Aviva team and are confident in their capability to succeed as an independent manager,” said Dear in the statement. “We also welcome Capital Dynamics to the CalPERS portfolio,” said Dear. “This new relationship and the repositioning of the assets with the new independent teams is part of the systematic restructuring of our private equity program to reposition our assets and focus on improved performance, accountability and transparency with our partners.”

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Pacific Corporate became the second major money manager fired recently by CalPERS as Dear overhauls its portfolio. Last week, the pension dumped BlackRock Inc., which oversaw a New York real estate deal that cost CalPERS its entire $500 million investment.

To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

The latest update to the Milliman 100 Pension Funding Index, which consists of 100 of the nation's largest defined benefit pension plans, shows funded status increased by $67 billion during September.

(October 12, 2010) — US corporate pension liabilities dropped by $29 billion in September, leading to a $67 billion increase in the funded status of the top 100 schemes, according to research by Milliman.

The Milliman 100 Pension Funding Index found in its latest research that pension funds saw assets increase by $38 billion in September, while overall, the pension funding deficit decreased to $393 billion at the end of the month. The group said that if, for the remainder of the year, the companies in the study were to achieve their 8.1% median asset return expected for their pension portfolios for 2010 and the current discount rate of 4.93% were maintained, the funded status of the surveyed plans would increase, with a projected pension deficit of $390 billion and a funded ratio of 74.2%.

The good news follows a lackluster performance in August, when pension funded status fell to its lowest level in the 10-year history of the Milliman 100 Pension Funding Index, which reports on the nation’s 100 largest defined benefit schemes. At the end of August, the pension funding deficit was $460 billion, down $108 billion from the previous month. Approximately $17 billion of the loss came from asset declines, and an increase in liabilities pushed funding levels to decline even further.

“In September the volatility went our way, which was good to see after last month’s all-time low,” said John Ehrhardt, co-author of the index. “This month was a positive step toward full funding, but we have a long climb ahead of us. “Just to put this in perspective, it would take 17 consecutive, similarly positive months to get back to 100% funding. We all know that won’t happen in these volatile times, but a positive step is a positive step.”

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To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742