March 14, 2011
External Affairs Branch
Patricia K. Macht, Director
Contact: Brad Pacheco, Chief, Office of Public Affairs
CalPERS Releases Special Review Report on Placement Agent Activity
SACRAMENTO, CA – The California Public Employees' Retirement System (CalPERS) today released the following statements from its Board President Rob Feckner and Chief Executive Officer Anne Stausboll about the Pension Fund's commissioned special review of placement agent activity:
Rob Feckner, President of the CalPERS Board, condemned the apparent misconduct and apparent ethical breaches contained in this report, "On behalf of the CalPERS Board of Administration and every individual that works here to protect the interests of all of our members, we condemn in the strongest possible way the apparent misconduct described in this report," said Feckner.
"We commissioned the special review to find out what happened and we now have many answers. We have institutionalized more than a dozen new reforms and policies to guard against future wrongdoing, and the special review has identified additional policy changes that will be coming. Today we dedicate ourselves to pursuing all of the appropriate policy changes and all of the remedies available to us to both hold accountable the wrongdoers and prevent future misconduct. Let this episode in our history never be forgotten, that this report should remind today and tomorrow's stewards of CalPERS that ours and theirs is a sacred trust, one that should never be allowed to be compromised for personal gain or outside interests," he said.
The special review, conducted by the Steptoe & Johnson law firm and adviser Navigant Consulting, Inc., was commissioned in the fall of 2009 to review the fees paid by its external managers to placement agents and to ensure the Fund and its members were not harmed. The report considered more than 70 million pages of information collected from more than 400 custodians within CalPERS, and more than 140 interviews.
In addition to a series of recommendations presented to the CalPERS Board in December 2010, the Special Review made four new policy recommendations. These include:
- Any ethics-related proposal before a Board Committee must be decided by no later than the third regular committee session after its introduction. If it fails to meet the deadline, the proposal must go before the full Board at its next meeting.
- Providing additional training to Members of the Board on the requirements outlined in California's Bagley-Keene Open Meeting act to ensure all CalPERS-related business is decided at publicly-noticed meetings.
- Developing policies to better address the risks associated with Members of the Board who are experiencing serious financial difficulties.
- Adding additional policies and procedures to minimize the risk of inappropriate sharing of sensitive CalPERS information with individuals outside the system who might benefit from that information, who may include individualized coding of documents.
"Today's events represent the culmination of months of hard work by our Board and staff," said Anne Stausboll, Chief Executive Officer. "We have asked some very difficult questions over this time and we have faced what seemed to be insurmountable challenges. Our core values have kept us focused to get to this day. I believe this is a turning point for our organization, and a pledge to our members, employers and stakeholders, that misconduct and serious ethical breaches have no place at CalPERS."
CalPERS has already taken many actions to restore trust and confidence in the System. They include:
- Advancing a State law that requires placement agents to register as lobbyists and prohibits them from being paid fees based on whether CalPERS invests with their clients.
- Creating an Enterprise Risk Management Office and the position of Chief Risk Officer* with overarching responsibility for risk management throughout CalPERS
- Creating an ethics helpline to help identify fraud, waste and abuse
- Posting conflict of interest forms and travel costs on the CalPERS website
- Establishing stringent new procedures when traveling for meetings with investment managers, including prohibiting staff from accepting gifts of entertainment and meals held apart from business meetings
- Establishing new rules for communications between Board Members and staff about investment proposals and contracts
- Granting new authority to discipline Board Members who violate policy
- Conducting periodic audits to ensure compliance with CalPERS policies and regulations that preclude use of the Fund's money for payment of placement agent fees
- Seeking greater transparency from investment partners about the cost of advisory board and annual meetings
- Enhancing the process of responding to Public Records Act requests
- Proposing new policies permitting outside consultants to fulfill only one of two roles – either offering opinions on the merits of an investment proposal or assisting in the monitoring of the investment once CalPERS makes it. Investment consultants should be precluded from performing money management functions and a consulting role.
- Obtaining, through the special review, over $200 million in fee concessions from leading external managers, and an additional $100 million in fee reductions from a number of other large external money managers, with these managers agreeing to not use a placement agent when seeking CalPERS business in the future.
- Instituting a new Contract Related Disclosure Policy to help ensure that the contracting process is impartial by disclosing the circumstances that may create actual, potential, or perceived conflicts of interest or bias. The Policy applies to all new contracts and amendments to existing contracts (including contract extensions), letters of engagement, consulting purchase orders and similar agreements and to bidders' proposals across the System where the total amount of agreement is $10,000 or more. CalPERS will be adding a regulation for this new policy.
"While the report speaks for itself, the courage and commitment of the institution in seeing this through and safeguarding its beneficiaries was remarkable," said Philip S. Khinda with Steptoe & Johnson.
A copy of the Special Review report can be found on CalPERS website under the CalPERS Board of Administration agenda materials at www.calpers.ca.gov.
CalPERS is the nation's largest public pension fund with approximately $228 billion in assets. It administers retirement benefits for more than 1.6 million active and retired State, public school and local public employees and their families.
*CEA allocation pending approval.
Additional ResourcesSpecial Review Report (PDF, 504 KB)
Questions and Answers (PDF, 146 KB)