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CalPERS board chief urges colleagues to steer clear of investment go-betweens

Rob Feckner asks fellow directors not to meet privately with so-called placement agents while the public employees pension fund conducts an investigation of the intermediaries' activities.

November 06, 2009|Marc Lifsher and Evan Halper

SACRAMENTO — The board president of the nation's biggest public employee pension fund is urging his fellow directors to avoid private meetings with go-betweens who help pitch private-equity investments to the fund.

The California Public Employees' Retirement System board has ordered an outside investigation of the role of those intermediaries, known as placement agents, in the agency's massive investments, and board President Rob Feckner said members should not associate with the agents, at least for now.

Feckner's memo, issued Thursday afternoon, came as his agency is buffeted by growing concerns about the role of intermediaries, money and influence in CalPERS decisions and calls for reforms in the way CalPERS handles its affairs.

The agency's recent woes have been a long time coming, said Edward Siedle, an expert on pension malfeasance and a former attorney with the Securities and Exchange Commission. The fund, he said, is experiencing a string of embarrassments after years of not policing itself.

"At every level, the fund has serious issues they have not dealt with," said Siedle, who is based in Florida.

"There is no excuse for a fund that size to be hit with wave after wave of revelations of wrongdoing. It shows a lack of discipline. A lack of leadership. A lack of fiduciary responsibility."

In recent weeks, Sacramento was jolted by disclosures that private-equity firms with which CalPERS does business had paid more than $70 million in commissions to a single so-called placement agent for help closing about 10 big investment deals over the last decade.

The intermediary was Nevada businessman Alfred J.R. Villalobos, a former CalPERS board member and onetime Los Angeles deputy mayor. Records and newspaper interviews revealed that he had close personal and professional ties to a former CalPERS chief executive, Fred Buenrostro, and board member Charles Valdes.

"In light of concerns regarding placement agents, I have cautioned my fellow board members to not meet with representatives from placement-agent firms at least until the special review is complete," Feckner said in his statement. "If they do meet with placement-agent firms, I'm requiring them to disclose the meetings to me and our full board."

Under some circumstances, such disclosures already are required under CalPERS board rules. But significant loopholes exist when a meeting is considered coincidental or social.

It's not clear what authority Feckner has to order board members to meet or not meet with an investment pitch person. However, members are expected to comply even though the fund's rules provide no legal penalty for ignoring a directive from the elected president.

Feckner said in his statement that the board at its meeting scheduled for Nov. 16 would consider "additional and more formal reforms." He provided no details.

In May, the board adopted a first-ever disclosure policy, requiring investment firms to make public their relationships with placement agents and the fees paid to them.

Feckner, a Napa school district employee, also cautioned investment funds, including such major firms as Apollo Management of New York, or their agents to "stop any practice of advancing travel costs to anyone associated with CalPERS."

That statement appeared to respond to a story published Thursday in the Sacramento Bee that Villalobos had paid $15,000 to take CalPERS board member Valdes on a luxury trip to London, Dubai and Hong Kong in November 2006.

Valdes, who plans to leave the board in January after 26 years, told the Bee he reimbursed Villalobos in cash. He did not report the trip as a gift on his 2006 government disclosure form. CalPERS travel policy prohibits the acceptance of free travel.

Late Thursday, Valdes produced a facsimile of a canceled check dated Dec. 1, 2006, and made out to Villalobos' company, Arvco Capital, for $23,630.90. The memo field on the check said "Reimbursement Dubai London."

Valdes also is under investigation by the state Fair Political Practices Commission in connection with campaign contributions he received from Villalobos business associates.

Buenrostro, the CalPERS CEO from 2002 to 2008, became friends with Villalobos while the two served on the CalPERS board in the early 1990s. Buenrostro went to work for Villalobos' company in August, 13 months after retiring from CalPERS. He also used Villalobos' Lake Tahoe home for a 2004 wedding. "I paid for everything," Buenrostro told The Times.

What CalPERS must do next is to come up with a permanent "bright-line rule" barring board members from "interacting with placement agents that could be seen as having influence on their decisions," said Kathay Feng, executive director of California Common Cause, a good-government group.

Feng said CalPERS for years allowed placement agents to operate in the shadows with no disclosure rules governing their activities, unlike in the Legislature, where every lobbyist must register and file reports about their clients, their fees and specific bills they lobbied on.

"As long as the economy was buzzing along and rates of return were positive, everybody was willing to allow these kinds of relationships to go on at CalPERS," Feng said.


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