PAAMCo Refutes Allegations It Misled Investors Over Women-Owned Status

Pacific Alternative Asset Management Company (PAAMCo) is in the spotlight over whether it was "designed to mislead" by appearing as a women-owned business.

(October 20, 2010) — California-based fund of hedge funds shop Pacific Alternative Asset Management (PAAMCo), with almost $9.8 billion in assets under management, is denying that it structured the fund to make it appear as though it was woman-owned in a front to lure investors.

PAAMCo’s reputation as a female-owned firm came into question when S. Donald Sussman, a financier who long supported the firm, challenged that image, claiming in a lawsuit that he was due a 40% ownership stake, the New York Times reported. In August, US District Judge Richard Sullivan ruled in Sussman’s favor, concluding that PAAMCo’s arrangement with Sussman “may have been designed to mislead a number of observers, from the tax authorities to the SEC to entities wishing to invest in women-owned businesses.” Following litigation between Sussman and the firm’s parent company, PAAMCo Founders, the judge granted Sussman a 40% stake in the fund of funds firm which allowed him to convert the $2 million loan he gave the company a decade ago into an equity stake. Court documents assert that one of the reasons for the convertible loan agreement was so that PAAMCo could market itself as a woman-owned firm.

PAAMCo Founders, a group of founding members that own a roughly 75% voting interest and 65% economic interest in PAAMCo, issued a statement on the judge’s ruling, provided by the NYT, saying that it “strongly disagrees” with Judge Sullivan’s opinion that that the fund of funds’ arrangement with Sussman “may have been designed to mislead…Although PAAMCo was historically majority women-owned, it has only competed for the large-scale institutional allocations that are open to all and, contrary to what is implied by the judge’s statements, has never taken any ‘set aside’ business or minority mandates,” asserted the statement, taking issue with the conclusions made by the judge’s ruling.

PAAMCo has said that despite the court ruling awarding Sussman a stake, he wouldn’t be able to influence or control investment decisions made by the firm.

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The hedge-fund investment firm is headed up by Jane Buchan, who started the firm in 2000, along with James Berens, Judy Posnikoff and William Knight.

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

A new study concludes that raising the retirement age and increasing employee contributions is only the first step in addressing California’s mounting public pension liabilities.

(October 19, 2010) — A new study by the Milken Institute shows that the combined liability of California’s three major state pension funds — the $216.4 billion California Public Employees’ Retirement System (CalPERS), the $131.8 billion California State Teachers’ Retirement System (CalSTRS), and the $45.9 billion University of California Retirement System — may exceed more than 5.5 times its annual tax revenue within two years unless lawmakers rein in benefits.

“The state of California simply lacks the fiscal capacity to guarantee public pension payments, particularly given the wave of state employees set to retire in years to come,” the study reports. “We’re talking about a perfect storm: more state services needed for an aging population, a workforce that will spend more years in retirement than they did contributing to the funds, and a smaller ratio of working-age taxpayers and contributing state workers to pay for it all,” said co-author Perry Wong, director of regional economics at the Milken Institute, in the report. “We hope this paper reminds the public and policymakers that these are urgent issues we need to look at right now,” Wong told aiCIO.

The researchers concluded that the California’s mounting pension costs are being fueled by demographics such as an aging work force and longevity gains among retirees, as well as an increasing demand for government public services. To curtail the growth of unfunded liabilities, the report, titled ‘Addressing California’s Pension Shortfalls,’ offers two key recommendations:

Raise the retirement age while increasing employee contributions
Shift to a risk-sharing plan, which would guarantee a basic pension while asking employees to bear the investment risks for part of their future benefits. The report indicates that California will eventually need to switch to a hybrid plan in which a portion of the benefit is guaranteed and the rest is subject to market risk, as with a 401(k).

The study based its conclusions on data from the UCRS, California Legislative Analyst’s Office and California’s Finance Department. It examined the ratio of the three pensions’ forecast unfunded liabilities to current assets, after accounting for state contributions.

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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