CalPERS middleman Alfred J.R. Villalobos was also working for a La Jolla…
Reporting from Sacramento — A Nevada businessman was paid $17 million by two private equity firms to help them win business from California's giant pension fund at the same time he was working for a La Jolla company that was advising the fund on those investments.
The board of the California Public Employees' Retirement System had been informed about the arrangement during a closed-door meeting.Its legal staff determined there was no conflict of interest, and the board approved $1 billion in investments with private equity funds Apollo Global Management and Aurora Capital Group.
Now, two years later, those deals and the role played in them by Stateline, Nev., businessman Alfred J.R. Villalobos are among the matters that CalPERS officials say they and their outside lawyer are investigating.
Villalobos' lucrative work for Apollo and Aurora in 2007 was disclosed in October by CalPERS. But only recently has CalPERS revealed the Villalobos ties to Pacific Corporate Group, the La Jolla firm that recommended the Apollo and Aurora investments and has been under contract with the pension fund to provide independent advice on its investments for two decades.
In addition to its consulting work, the company has an investment division that actively seeks business from pension funds. The company has maintained that the divisions operate independently and that as a result, the relationship does not pose a conflict of interest.
California's public pension fund, its staff and lawyers have been reviewing the role of so-called placement agents, or financial intermediaries such as Villalobos, in helping their clients win a piece of CalPERS' $200-billion portfolio.
The review began after New York Atty. Gen. Andrew Cuomo issued subpoenas to a number of public officials and businesspeople involved with pension investments, including some people with ties to California, and in some cases brought corruption charges.
Villalobos has been under a spotlight since CalPERS revealed he had been paid at least $70 million in fees over the last decade to help private firms pitch their investment products. He has declined interview requests from The Times.
Pacific Corporate Group Chief Executive Christopher J. Bower declined to answer questions about the 2007 arrangement. But in a letter sent to CalPERS before its decision to invest the $1 billion, Bower disclosed the firm's relationship with Villalobos and his company.
"They [Villalobos and his company] are not involved in our consulting relationship with you and do not share in or benefit from any fees earned by us for any services we provide to CalPERS," Bower wrote in a June 8, 2007, letter released by CalPERS this month.
Although CalPERS' legal staff saw no conflict at the time, some independent ethics experts point out that Pacific Corporate Group's advice to the pension fund helped create a financial windfall for Villalobos, who was positioned to help return the favor for the firm.
"It is an extreme conflict," said Mercer Bullard, a securities law professor at the University of Mississippi and a former U.S. Securities and Exchange Commission attorney. Pacific Corporate Group is "evaluating the company Villalobos is working for and Villalobos is doing something for them that has a major impact on their bottom line."
He said CalPERS' hiring of a consulting firm with such a conflict is "essentially giving up on true due diligence before the process even starts."
In a statement, Pacific Corporate Group, which offers both investment consulting and fund management, said it had established a firewall between its two divisions. The company said it had helped guide CalPERS toward billions of dollars in profits over 20 years.
CalPERS spokesman Brad Pacheco said in a statement that the pension fund's legal staff had determined that Pacific Corporate Group's relationship with Villalobos did not compromise the value of the consultant's advice because Villalobos played no direct role in its consulting business.
Pacheco's statement said that CalPERS' staff and other independent consulting firms backed Pacific Corporate Group's recommendation to invest in Apollo and Aurora.
Even so, he noted that "placement agent matters -- including this one -- are part of the special review" that CalPERS is conducting of the activities of pitchmen such as Villalobos and the commissions they are paid for helping investment managers land business with the pension fund, the nation's largest.
Remarks by the CalPERS spokesman came after several days of refusal by CalPERS to discuss the matter or reveal any details of the way the fund handled it. Along with the statement, CalPERS, for the first time, publicly released the disclosure letter Pacific Corporate Group had sent to the pension fund informing the agency's investment staff about the appearance of a conflict of interest.
