And let’s see what’s been happening in the pit of the “pension crisis,” shall we?
…
“Three years ago CalPERS also was hit by a pay-to-play investment scandal. A CalPERS probe found that a former board member, Al Villalobos, received $50 million in “placement fees” from private equity firms for helping them get CalPERS investments.”
“…A board report last week showed that CalPERS is paying $1.2 billion a year in fees to outside money managers, $19.2 million for consultants and $29.5 million for CalPERS investment staff.”
[Mind you, the bulk of CalPERS investments are managed in-house, by boring, salaried govt workers…for a MUCH, MUCH lower cost. -CAR]
“…Board member Richard Costigan, who also serves on the State Personnel Board, said the personnel board hears cases about “contracting out” state work to the private sector, but not on the scale of the $1.2 billion CalPERS fees to outside manager.”
“CalPERS already manages more than 93% of its $110.1 billion in fixed income and 83% of its $114.5 billion in public equities in-house. With internal passive management generally outperforming external active management over the past five years, said board member J.J. Jelincic, “it doesn’t make any sense to continue paying fees for underperformance.”
CalPERS data back up Mr. Jelincic’s point. CalPERS’ nine internally managed domestic equity strategies, seven passive and two active, with a total of $43.7 billion in assets, outperformed the five external domestic traditional equity managers — Boston Co. Asset Management LLC, First Quadrant LP, J.P. Morgan Asset Management (JPM), Pzena Investment Management and T. Rowe Price Group Inc., managing an aggregate $3 billion in assets — for the one, three and five years ended Dec. 31.
For the year, the combined CalPERS portfolios returned 0.66% vs. -1.18% for the five managers. For the three years, the CalPERS portfolio showed a gain of 15.17%, while the managers returned 13.32%. For the five years, CalPERS had 0.34% compared with -1.71% for the managers. Multiyear returns are compound annualized.”
Mind you, CalPERS used to manage almost everything in-house and had tight restrictions WRT what they could invest in — almost exclusively Treasuries with some smaller allocations to very highly-rated municipal and corporate debt. Wall Street lobbied hard both to change their allocations to riskier investments (those lovely “innovations” created by Wall Street, included), and then lobbied to have outside managers and consultants at the public pension funds. If not for those changes — the PRIVATIZATION movement at work — the “pension crisis” would be much less significant than it is today, if it were to exist at all.
So…how’s that “privatization” thing working for you?
