Monday, June 19, 2017

CalPERS is putting the screws to board dissent

CalPERS is putting the screws to board dissent

Later this week, the CalPERS board will consider a new rule that requires board members to submit articles and other materials to the CEO rather than transmitting them directly to fellow board members.    The CEO will then determine the appropriateness of forwarding the material to the rest of the board.  The pension’s counsel claims that this new rule is needed to remain in compliance with the state’s public records law, known as Bagley-Keene.  Bagley-Keene isn’t a model of clarity and I’m not in the habit of reading it.  However after reading the statute, I’m hard pressed to understand how the proposed rule has anything to do with the open meeting law.



Yet again, the financial press hasn’t picked up this pending rule change.  It was left to Naked Capitalism to unearth this proposal.[1]  Moreover, NC has also figured out that CalPERS has been reproducing full-length articles of copyrighted material on its internal website without permission from the owners of the content.  This is one more example of bad governance from a supposedly sophisticated organization.

The rule’s real purpose is to snuff out dissent, stifle discussion, and give the professional staff unfettered control of the pension.  Having observed hours of board and committee meetings on the Internet, I already thought that dissent and discussion were extremely limited and that the professional staff had too much control over the proceedings.  The proposed reinforces the bad corporate governance model of the nation’s largest public pension plan.

In advance of the meeting, board members should be doing the very thing this rule would proscribe.  They should be gathering the evidence and opinions necessary to meet this proposed rule with the rebuke it deserves.   Despite the outrageousness of this proposal, I’m betting that only one board member will raise concerns.  Sadly, JJ Jelinicic will be leaving the board. 

CalPERS claims to be an enlightened investor that promotes high standards of corporate governance for the companies in which it has an investment.  Those lofty principles do not appear to apply to CalPERS itself.




[1] http://www.nakedcapitalism.com/2017/06/heads-roll-calpers-held-accountable-massive-copyright-infringement.html

Friday, June 16, 2017

How to bury a performance problem: A lesson from CalPERS

How to bury a performance problem:  A lesson from CalPERS

When an investment isn’t working out very well, the first step is to acknowledge the problem.  CalPERS has taken the opposite posture in addressing the shortfall in its private equity program.   Moreover they have engaged in the very behaviors that would require the average retail investor to fire her broker or financial advisor.  If one of CalPERS’s outside managers utilized one of these tactics they too would be terminated.



I won’t describe all of CalPERS misdeeds.   Rather I suggest you read the work of Naked Capitalism[1].  It is the only media source that has consistently investigated the performance of CalPERS private equity program.  The Sacramento Bee, Los Angeles Times, Pensions and Investments and few other publications occasionally provide some coverage, but no one else has done the detailed work required to expose CalPERS’ systematic attempt to avoid addressing the poor performance of their PE program.  In addition, you can find a series of posts on this subject on my blog.[2]

In the first ten years of my investment career I learned about the three inappropriate ways to address a problem of investment performance.  I’m ashamed to admit that in my private sector career I occasionally relied on two of these methods rather than confronting the issue with a client.   Once or twice when my investment performance for a client lagged badly, I resorted to confronting a critic or proposing a new benchmark.  CalPERS has used both methods to distract from its underperformance, plus one more tactic.  Unfortunately, the beneficiaries of the CalPERS defined benefit plan cannot find another investment manager.  However, if your broker or portfolio manager tries any of the tactics described below, find another advisor.

Rather than accepting poor performance, attack your critic.  If a consultant or board member raises concerns about performance, make that person or organization a target.  This tactic will not only deflect attention, it will also intimidate other board members or advisors from asking hard questions about the performance shortfall.  The outspoken board member JJ Jelincic fell victim to this tactic.  He was harassed, censured, and vilified before he finally deciding not to stand for re-election to the CalPERS board.

Instead of admitting to poor performance, change the benchmark.  If the investment performance of a money manger or an asset class, such as private equity, trails the benchmark, attack the benchmark.   The idea is to excuse failure by impugning the standard of comparison.  The staff and consultants at CalPERS have been trying to tell its board and the public that the shortfall in performance is largely the result of a benchmark that isn’t appropriate.  Ironically those are some of the same professionals who proposed the benchmark in the first place.

To further obscure bad performance, change around the asset classes, known in the industry as “buckets”.  In the case of CalPERS, they want to combine public and private equity into one big bucket.  The idea is to bury their PE problem in a much bigger pool of assets.  CalPERS is not alone in adopting this strategy; a number of pensions, including North Carolina, have tampered with their buckets in order to make proper evaluation of their investments much more difficult.

The beneficiaries of CalPERS do not have an advocate challenging the performance of private equity.  The pension’s investment professionals, consultants, and board members have aligned to bury the problem.  This is how America’s leading pension plan has become a laggard.

Thursday, June 15, 2017

Taking care of its own: The House reaction to the shootings

Taking care of its own:  The House reaction to the shootings

“An attack on one of us is an attack on all of us. For all the noise and all the fury, we are one family.  We are being tested right now.”  Speaker Paul Ryan[1]

The Speaker’s comment, which received a standing ovation from his democratic and republican colleagues, left me depressed and angry.  Mr. Ryan spoke as Speaker of the House.  His speech focused on protecting the institution and thereby fostered unity among all of its members.  However, Mr. Ryan is Speaker of the House of Representatives.   Mr. Ryan and his colleagues are supposed to represent all of America.  As has become intolerably obvious, Congress fosters its own interests, those of its financiers, those of its constituents, and then the public interest, in that order.  It’s no wonder that Congress is seen as a failed institution in most polls.  Speaker Ryan’s comments only reinforce this conclusion.



Columbine, Sandy Hook, Charleston, the Pulse Night Club, Ferguson.  Congress hasn’t done a thing about any of these incidents.  However, you can be sure that it will take action to protect itself.  Member security will be improved, just as Congress has given itself excellent health insurance coverage and retirement benefits.

I’m glad that the Speaker and Minority Leader Pelosi exchanged kind words in the wake of the shootings in Arlington, Virginia.  However, they are supposed to be leading the people’s house, and they never undertake business that benefits the people.





[1] http://www.nbcnews.com/politics/congress/paul-ryan-attack-one-us-attack-all-us-n772346

A Sexist Reaction to the Alex Jones Interview


A Sexist Reaction to the Alex Jones Interview

Various reporters have previously interviewed the conspiracy theorist Alex Jones without much pushback from critics or advertisers.  When the late Mike Wallace interviewed controversial figures like Ayatollah Ruhollah Khomeini, Kurt Waldheim, Yasser Arafat, Manuel Noriega, Gordon B. Hinckley, or Mahmoud Ahmadinejad, he was doing his job.  Megyn Kelley’s upcoming interview with the conspiracy theorist Alex Jones has received very different treatment.   JP Morgan has canceled its advertising commitment and Ms. Kelley is being vilified for giving Mr. Jones airtime. [1]


In a week when her male colleagues cut off Senator Kamala Harris during the Attorney General Sessions appearance before the Intelligence Committee and fellow board member interrupted Arianna Huffington at an Uber board meeting, I think the reaction to Ms. Kelley’s interview is quite simply another case of sexism.  If Anderson Cooper or Lester Holt had conducted the interview with Mr. Jones, I wouldn’t be writing this post. 

I have to admit that I have my suspicions about Ms. Kelley’s journalistic principals after her tenure at Fox News.  Moreover there’s certain hypocrisy in her recent criticism of slanted broadcast commentary during her first show on NBC.[2]   As Fox news anchor Ms. Kelley routinely repeated the network’s demonstrably false assertions about President Obama and Secretary Clinton.  So Ms. Kelley doesn’t come to NBC with impeccable journalistic credentials.  Nonetheless, she deserves the same deference a male correspondent would receive if he interviewed a controversial figure. 





[1] https://www.nytimes.com/2017/06/14/business/nbc-megyn-kelly-alex-jones-sandy-hook.html?_r=0
[2] http://www.nbc.com/sunday-night-with-megyn-kelly/video/sunday-night-with-megyn-kelly/3528828