In response to statements by a CalPERS board member that Wall Street firms seeking to invest with public pensions should disclose if they’ve supported groups critical of government funds, industry insiders have expressed concerns over first amendment rights.
(April 25, 2011) -- A board member from the $235 billion California Public Employees’ Retirement System (CalPERS) has demanded more information about money-manager pension-bashing, Bloomberg has reported.
“We obviously have an interest in defending defined benefits and we have an interest in defending public employees,” CalPERS board member J.J. Jelincic, former head of one of California’s largest state worker unions, told the news service. “If the people we are paying a lot of money to are working against us, we ought to at least be aware of it and have a conversation about it,” Jelincic said, indicating that therefore Wall Street firms seeking to invest for CaLPERS should disclose if they've supported groups critical of government pensions.
Investment banks and money managers reportedly earned a combined $1.1 billion in fiscal 2010 for handling CalPERS assets.
However, some industry insiders believe that the demands represent an infringement of first amendment rights, giving public pensions too much leverage and an undue amount of control over public opinion. "I almost view this as a conflict of interest," said one institutional source, who refused to go on the record due to fears of being penalized and shut out of doing business with large public funds. "It would make it difficult for money-managers to have any dissenting view," the industry source claimed, adding that manager selection should focus purely on performance.
The demands by CalPERS reflect political pressures in the public pension fund universe. In February, a trustee for New York City’s police retirement system expressed similar demands, proposing that the fund's board have the authority to dismiss future managers who speak badly about public pensions.
The proposal stemmed from an executive comment that resulted in New York-based alternatives giant Blackstone Group losing out on a mega-million alternative investment contract. In March, Blackstone reportedly missed out on a $150 million contract with the New York City police pension-fund investment as a result of comments made last year by Byron Wien, the firm’s chief strategist, who said government retirement benefits are "too generous."
“We literally can’t afford the benefits we have given our retirees in state and local governments,” Wien was quoted as saying in January 2010. “The retirement benefits for state workers, really not only in New York, California and New Jersey, but throughout the country, are very generous. Too generous.” According to the New York Post, New York and London-based Permal Group, a global alternative asset management firm, was awarded a contract two weeks ago over Blackstone to invest the $150 million in police pension money in hedge funds, asserting that Wein's harsh comments were largely to blame.
In response to the initial uproar over Wien’s comments, Blackstone released a statement in January, saying:
"Blackstone’s view on public employee pensions is clear and unambiguous: We believe a pension is a promise. Working men and women should not have to worry about their retirement security after years of service to their communities. We oppose scapegoating public employees by blaming them for the structural budget deficits that cities and states face. We at Blackstone are committed to helping public employees retire with confidence in the strength and reliability of their pensions."