More on CalPERS’ Sloppy Private Equity Records and Its Aggressive Stonewalling

As readers may know, we’ve been in a protracted struggle to obtain private equity performance records from the giant public pension fund CalPERS, the largest investor in private equity in the US.

Perversely, CalPERS has maintained, even in its public filings, that it agrees we should have all the records that we are seeking. Yet when we tried to inform CalPERS on March 18, both on our blog and attempted to do so through our attorney to CalPERS’s attorney, of the gaps in what we had received to date, opposing counsel did not allow my attorney to tell him precisely what was missing. In the same spirit, CalPERS responded to our blog post with a press release thin on substance and long on personal attacks, which is so beneath what you’d expect from an major institution that it looked both defensive and amateurish. Oh, and not surprisingly, we’ve gotten no records since that date.

Mind you, there is no evident reason for this delay, since CalPERS is not screening records to exclude confidential material or make redactions, which is the usual reason for slow responses to Public Records Act requests.

CalPERS’ justification for foot-dragging has been that our request is “confusing.” They have also tried to depict us as somehow taking advantage of CalPERS’ and asking for more data.

In fact, we initially made a request and provided CalPERS with text from and a link to the original academics’ study that led us to ask for the same data they’d received. CalPERS, per its own repeated admissions, only looked at past Public Records Act requests; it did not make inquiries with staffers nor did it search e-mails. Based on this inadequate search, they rejected our request.

After our attorney wrote a nastygram, they didn’t reverse their claim that they had never heard of the academics (effectively accusing them of misrepresentation or misappropriation of information) but if we told them what we wanted, they’d provide the data. Our revised submission was based on the reading of the academics’ paper and made repeated references to it. The only part that we though was an addition was to ask for an update, which we made clear was above and beyond the scope of the paper. Ironically, the request for the update was the only information CalPERS provided.

So CalPERS’ compliant that about our request having changed is tantamount to someone killing their parents and asking for sympathy for being an orphan. CalPERS wasn’t willing to contact the academics then to see how they’d gotten the information and what it amounted to; they refused to take that step until we’d sued them. Nor were they willing to search the paper for the name “CalPERS” to see how the scholars described what they’d gotten from CalPERS; they tasked that to us. It turns out that the academics had made it sound as if they’d gotten more than they actually had. But the Public Records Act is very accommodating toward members of the public amending requests as the party making the inquiry better understands what records an agency does and does not have. So the request winding up with what turns out to be an enlarged scope is the direct result of CalPERS’ refusal to take the obvious steps of reading the paper and contacting the researchers.

We should probably not be surprised at CalPERS’ lack of cooperation, or perhaps more accurately, its Orwellian definition of “cooperation”: maintaining a friendly-looking paper trail while continuing to refuse to deliver records. Stonewalling is normal conduct for government agencies, even ones who are siding with interests (in this case, private equity general partners) that the SEC has told them is stealing from them. A recent CalPERS officer told us that despite CalPERS’ CEO Anne Stausboll publicly vowing to provide more transparency and specifically to responding to Public Records Act requests (California’s version of the Freedom of Information Act) more rapidly, that CalPERS had instead instituted more systematic procedures to stymie Public Records Act requests.

That is not to say that there has been no communication regarding data issue since mid-March (they’ve gotten two affidavits from our expert on data shortcomings). We have indicated that CalPERS does not appear to have a clear list of what is in and not in its private equity program, based on inconsistent responses we have received in our various Public Records Act requests. Indeed, CalPERS, in an affidavit in a court filing, effectively admitted that it had no idea how many unique fund names were in a critical record it has supplied to us:

Screen shot 2014-06-04 at 6.53.27 PM

Now keep in mind that CalPERS presumably does have comprehensive records at its fund custodian, State Street, which makes all payments on behalf of CalPERS and also receives all distributions from private equity funds. CalPERS can access those records through a software interface called Private Edge.

Nevertheless, CalPERS’s responses to our Public Records Act requests suggests that it relies on a day-to-day basis on private equity records that are kept locally, at CalPERS, and that these have significant shortcomings. We’ve run the gaps in records that we’ve identified by several experts in database management, compliance, and IT systems at large financial firms. To a person, each has said that the records that CalPERS has sent us are in poor order, particularly given the comparatively small size of the database versus its size and importance.

In mid-April, CalPERS, via its outside counsel, did send us a list of 856 funds which we believe it was representing as the complete set of funds on which we were seeking data. We did not respond at the time because we had a hearing upcoming and this was not fulfill any of our outstanding requests and hence was not on our critical path. It also took a fair bit of time to check the list versus other data sources due to the shoddy state of CalPERS’ records, which means that any accurate check would be highly if not entirely manual (and it did turn out to be manual).

Last week, our attorney wrote CalPERS’ outside counsel to tell them that the list of funds they had sent us in April was obviously short, which we determined by comparing it with other documents CalPERS has previously sent us and has made public. This is the full text of his message to CalPERS:

Dear Ed,

Thank your for forwarding the list of fund names (fund count by vintage.xls or “Fund Count”) in order to make sure all of CalPERS is in a position to complete Ms. Webber’s outstanding Public Records Act request, #1385. Our understanding is that CalPERS has presented this file as what is believes to be a complete list of its investments in private equity from the inception of its strategy though its latest date of publication of financial return data on its website.

However, Fund Count, based on comparisons with previous data productions (specifically, Investment Cash Flows_Fund Characteristics.xls or “Cash Flows”), CalPERS’ own current fund list on its website, and other public data, is short by at least 45 funds.

There are 44 funds listed in Cash Flows that do not appear in Fund Count. 11 of those names are also on CalPERS’ public website now. A >5% level of omissions is very high. We only have this more comprehensive tally (from Cash Flows) on current funds, which represent well less than half of the total number of investments that CalPERS has made since it started participating in this investment strategy. It is therefore reasonable to surmise that there are even more missing funds. For instance, we can see that Jedi, a publicly disclosed CalPERS investment in Enron vehicles in the 1990s, is also missing, bringing the total to a minimum of 45. We are happy to give CalPERS the names and apparent types of missing funds so they can make sure other funds in these categories are included in the final fund list that they can then use to complete this request.

In addition, regarding the other items in your April 14 list:

1. As we have stated repeatedly, a PDF is not a responsive record under the Public Records Act when it is a machine-readable document. We have consistently requested compliant responses, which in this case are Excel spreadsheet or other CSV formats. Metadata show that the PDFs meant to imitate the PDF sent to the Oxford academics in 2009 were generated in March 2014 from Excel spreadsheets. Given the size of the spreadsheets, the process took close to an hour. CalPERS is creating more work for itself in generating these non-responsive records than in complying with her still-outstanding PRA (which could easily have been done by simply e-mailing the underlying spreadsheet used to generate the March 2014 PDF). We again request that this information be sent in a responsive format.

2. CalPERS has given Ms. Webber detailed cash flow information twice, and has also given it to at least one third party that requested it. The provision of partial cash flow information came about only by virtue of CalPERS not contacting the academics, as it could have at any time since November 12, 2013, and not being willing to make its own reading of the paper at issue and determine what records it might be referring to. Ms. Webber was asked by CalPERS what she wanted in early February, and she made a good faith reading of the paper, including quoting it at length, in a response I included in an e-mail to Robert Carlin on February 8. CalPERS agreed with that reading, otherwise it would not have provided this data.

Now that CalPERS has established both via its actions and by specific statements in its official correspondence to Ms. Webber that this type of data is disclosable, Ms. Webber remains perplexed as to why, after having asked for it repeatedly, the missing portions of this data have yet to be supplied.

3. In addition, Ms. Webber also asked for commitment dates on February 8. She has yet to receive any information of this type.

We hope that once CalPERS generates a complete and accurate list of fund names that the three items she has consistently requested, namely, the information publicly presented quarterly on the site in Excel or CSV format, the detailed cash flows, and the commitment dates, will be forthcoming for dates from the inception of CalPERS strategy private equity strategy, to the present..

It should be possible to obtain the financial data from CalPERS’ custodian, State Street. Ms. Webber requested CalPERS’ user documentation for this State Street database, called Private Edge, in an separate PRA, #1515. She has yet to receive any information even though she was promised a response by April 7. Having this documentation would enable Ms. Webber to provide instructions to CalPERS’ staff should they continue to have trouble locating information in their own local information management systems. The failure of CalPERS to complete a long-outstanding, not controversial request raises serious questions about CalPERS’ claims about being willing to work with Ms. Webber. She has other PRAs outstanding where she was promised responses two months ago (#1514, on April 7, #1530, on April 16). She has not received any information nor an explanation as to the lengthy delay.

Prior to my involvement , Ms. Webber’s calls and e-mails to designated contact individuals were ignored. The handling of her outstanding PRAs suggests that this pattern continues. If CalPERS is genuinely interested in providing the data to Ms. Webber, as it has maintained in court filings, it would be productive to designate someone at CalPERS to complete her requests and have her work with that person directly. Otherwise, Ms Webber will have no other recourse than to use her blog to communicate with CalPERS and/or return to court.


Timothy Y. Fong

So what was CalPERS’s response? If they were truly interested in cooperating, one would think they’d discuss which of the various lists of supposedly complete records of their private equity funds was the complete and accurate record and then we could identify from that what information was outstanding and work towards a resolution.

Instead, our delayed response to an open item instead led CalPERS to demonstrate, rapidly and forcefully, how determined it is not to provide information that is clearly in the public interest.

As we indicated in an older post, we lost at a hearing in early May on our Public Records Act request because the judge deemed our case to be premature. However, her order, which was drafted by Steptoe, which she apparently signed without reading, does not track the trial transcript, in which she said nothing about dismissing our case. As we stressed at the time, this was the mildest sort of defeat we could have experienced.

Today, CalPERS’ response to our e-mail last week is to try to misrepresent the plain language of the what the judges ruled from the bench (see transcript), and asked Steptoe then was asked to write up into an order, and to attempt to declare the judge to have dismissed our case with prejudice, when she did no such thing. This effort will lead to to spend more time and effort to fight a patently absurd motion in order to preserve our Public Records Act request. And that, of course, is precisely the point: to engage in a war of attrition and waste retiree dollars rather than serve beneficiaries’ and the public interest by fulfilling an outstanding information request which they have stated in court should be fulfilled. And again, let us remind you that in court filings, CalPERS has claimed that it has been fully cooperative. Their consistent course of conduct belies these statements.

Aurora v. CalPERS Proposed Judgment (6.10.14)

Eileen Appelbaum and Rosemary Batt, in their new book Private Equity at Work, stress how the lack of a comprehensive data base of all private equity returns makes it impossible for investors and the broader public to know whether private equity returns are in fact adequate given the risks involved. CalPERS itself seems to be saying no, having decided twice in recent months to cut its allocation to private equity. But rather than play the leadership role that CalPERS likes to play in the industry, it is instead refusing to fulfill an information request that it has no basis for denying, unless it intends to find a way to weasel its way out of its repeated admissions by its words and actions that this information is disclosable.

So the real question now becomes: What is CalPERS hiding and why is it so desperate to hide it? There’s no justification for CalPERS continuing to stonewall in this manner, unless it’s left Steptoe & Johnson inadequately supervised and is allowing it to rack up bigger and bigger legal bills rather than live up to CalPERS’ general public statements regarding transparency and its specific claims regarding its willingness to cooperative with us and agreeing that we should have the information we’ve been seeking for seven months. Again, from its motion of objection to our writ of mandate: “CalPERS never objected to Aurora’s PRA request for private equity data….it remains ready to produce additional data on private equity funds not included in its production to date, if there are any such funds.”

It’s clear that CalPERS has no intention of walking its talk. A polite note taking CalPERS at its word and seeking to identify open items led to a scorched earth response.

If you live in California, I encourage you to call or write you state legislators about this waste of retiree (and ultimately taxpayer) funds, as well as the more troubling issue it raises as to why CalPERS is so desperate to keep this information secret. I also ask those of you who have current or retired California state employees among your family, friends, and colleagues, to call or e-mail then to about this dubious conduct and encourage them to ask call their legislator or write a letter to the editor of their local paper.

As we’ve written elsewhere, the SEC has alerted private equity limited partners like CalPERS to widespread lawbreaking and serious compliance violations by private equity fund managers, and the media has just started unearthing examples of bad conduct (see here and here). Contacts at major media outlets and well placed sources tell me more significant stories are in the works.

Yet CalPERS is siding reflexively with parties that have been cheating them, the private equity general partners, rather than those to whom it is responsible, namely, its beneficiaries and the public at large. I hope you’ll take a few minutes to encourage friends and colleagues to contact their state legislators to educate them about the importance of these issues and express their concern about CalPERS’ concerted and costly efforts to keep their fund data hidden.

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    1. Jim Haygood

      ‘Despite CalPERS’ CEO Anne Stausboll publicly vowing to provide more transparency … CalPERS instead instituted more systematic procedures to stymie Public Records Act requests.’

      It is most unfortunate that this is a state rather than a federal matter. In which case, we could call upon the most transparent administration in history to shed some sunshine on the matter.

      1. fresno dan

        As I have taken some flack for my libertarian leanings in the past, (I have acknowledged the shortcomings of the philosophy and that I have changed my opinion on a number of things – the market often not only doesn’t work, but makes things much, much worse) I feel compelled to point out that this is a good example of my distrust of government.
        Here you have what are suppose to be objective, dispassionate people running what is essentially a pension system – nothing really controversial or difficult about how to do it or oversee it. It is governed by all sorts of rules – rules that I would say are pretty well thought out and common sensible. Yet somehow, this agency can thwart requests for public records.

        Now WHY would they want to do that? …

        Well, just as the flaw in libertarianism is overlooking the fact that people will not play fair on the field of free enterprise, trying to influence (unfairly and corruptly) and bend the rules to their own advantage.
        Now we see that the people who run government agencies are not angels, disinterested, or even minimally honest or honorable. When big money is involved, the vultures circle….calling themselves doves.
        I think what I take out of this is that labels are useless. Of course, everyone advertises themselves as honest.
        Fortunately, in our system, the most honest get to advertise the MOST – that they are honest(SARCASM)

  1. kimsarah

    Re: “Yet CalPERS is siding reflexively with parties that have been cheating them, the private equity general partners, rather than those to whom it is responsible, namely, its beneficiaries and the public at large.”
    Perhaps that is because CalPERS is in bed with the cheating parties to gamble with pensioners’ funds. Surely the temptation is there.
    Of course if they are really investing wisely, legally and above board, they would have no reason to hide from any records request. Yet they are obviously stonewalling, and have no interest in cooperating. What would that tell a casual observer.
    Who are their board members again?

    1. Yves Smith Post author

      We’ve been told by current and recent insiders that the board now gets less information than it did before the massive 2011 pay to play scandal, which led to the indictment of CalPERS’ former president and a former board member turned placement agent who received (no typo) $58 million from five private equity funds. See here for details:

      So it appears that while CalPERS claims to be more open and accountable, it is instead providing for less board oversight and less transparency. It’s becoming apparent on what ought to be a minor request by virtue of how consistent and aggressive CalPERS has been in stymieing disclosure while trying to pretend to have turned a new leaf.

      Writing to board members will not be productive. It is critical to write legislators and people in the media, or if you are in California, to write letters to the editor of your local paper. It would not hurt to cc board members, but if you do, also cc the CEO, Anne Stausboll on letters and e-mails questioning why CalPERS continues to fight disclosing information it professes it is willing to hand over (and wasting lots of money in legal fees in doing so).

  2. psychohistorain

    Ms. Webber continues to do society a service it is forcibly made too ignorant to appreciate.

    Some of us appreciate your efforts and thank you for them.

  3. vlade

    Is the PDF on the site the judgement, or the CalPERS proposed judgement? I’m asking because you say “Today, CalPERS’ response to our e-mail last week is to try to misrepresent the plain language of the judge’s order and to attempt to declare the judge to have dismissed our case with prejudice, when she did no such thing. “, but the pdf says in point 2. “… dismissed with prejudice”, and it doesn’t mention the request as premature anywheer. Of course, not being a lawyer I migt have missed something..

    1. Yves Smith Post author

      This is a proposed motion from Steptoe and Johnson. It is a request to the court. It is NOT the judge’s order. The judge ruled on May 2 and I put a link to the filing in the post, as well as a link to a post we had discussing it earlier. Steptoe has not filed it yet but the fact that they have asked us for any objections in the next five days.

      The judge indicated that our case was premature. That is the least negative ruling the judge could have made. It basically says, “If CalPERS later still hasn’t delivered the records, you can come back to court.”

      CalPERS is now trying to get the court to basically rewrite what the judge said by filing a motion that says something completely different, which is that our case was dismissed with prejudice (as in we can’t file it again). Judges are very clear when they are dismissing a case with prejudice and no such word came of her mouth. And Steptoe knows this, since they drafted the order and it tracked the transcript of the hearing.

      This has nothing to do with what the judge ruled. This is Steptoe forcing us to waste time and money beating back spurious motions (or hoping we screw up and they get to file the motion uncontested and get a back door victory they didn’t deserve).

      1. vlade

        Yep, that’s what I thought (“the CalPERS proposed judgement”). What confused me is that both the embedd and the link to the transcript were (IIRC) the same doc.
        Good luck!

  4. H. Alexander Ivey

    “It turns out that the academics had made it sound as if they’d gotten more than they actually had.”

    That is one reason why the academics have not volunteered their raw data from CalPERS – I am sure they signed a non-disclosure but once Yves made a Public Records Act request, they could have at least a fig-leaf to use so they could release the data to the public. But it seems that nobody officially involved has clean hands.

    1. Yves Smith Post author

      No, that’s not what happened. Basically the academics had sweet talked someone at CalPERS who had the authority to release the data to do so but didn’t follow the normal formal process. He had left CalPERS a few years ago.

      But CalPERS also failed to take basic steps like checking their e-mails or trying to contact former employees (there had been a lot of turnover among the top staff, so merely asking around would be insufficient). Their posture was if they hadn’t given out the data through their normal FOIA process (called Public Records Act or PRA in California) then it was not released. All they did was investigate past PRAs. That was tantamount to calling the academics liars or thieves.

      CalPERS was unwilling to take the obvious step of contacting the academics directly and finding out how they had gotten the data until we had sued them. That is why it is so hard to take their claim that they were cooperating seriously, and it’s so frustrating that the judge took CalPERS pious claims at face value rather than looking at the fact that were submitted.

  5. steelhead23

    While I think Yves is likely right and that CalPERS has been convinced by its PE partners that keeping mum would maintain, or even improve the profitability of its PE partnerships, there is another, more appropriate reason that could be driving CalPERS reticence to disclose details of its investments. Might it be that either CalPERS employees or PE firm partners are being investigated and full disclosure might alert the criminals and they’d split before indictments were handed down? It really would not surprise me if there were other rats on that ship. Who wouldn’t be tempted by a high-rolling former board member to take bribes? Its modern epicurean ethics – if stealing makes you happy, then steal baby steal. Belfort was not an annomoly.

  6. Patrick Gregory

    Hi Yves,
    Are you precluded from contacting CalPERS board members directly in an effort to resolve the situation? If you are able and have not done this, it appears that the board member who is also the California State Controller, would be an excellent choice of a person to contact directly. If you are precluded, perhaps it is possible to contact him in his capacity as California State Controller.
    The write up shown on that link indicates that Mr Chaing would understand what you seek and perhaps bring an end to the stonewalling without the need for lawyers.

    1. Yves Smith Post author

      Thanks for the thought. However, I have written the board twice (each member individually) to no effect. Boards are routinely told that once a party is in litigation against them, that they are to let the legal department handle it.

      However, if you have confidence in Mr. Chaing, you can contact him directly and express your concern about this matter. The records I am seeking should be readily at hand, and when under pressure from my attorney, CalPERS did respond quickly with partial records productions. One took a mere two days (of actual time at CalPERS), the other less than two weeks. The last records production was as of mid-March. We told them days thereafter that their production was still incomplete. They didn’t respond for a full month and then it was only to provide their idea of a funds list. They as of late today started acting as if they might be willing to provide more information, but their behavior has been to provide a bit of information, then go back into footdragging mode. So the more you can do to let CalPERS know through various channels that members of the public are perplexed and disturbed by their behavior, the better.

  7. hamstar

    i love what you guys are doing with this crusade but curious as to what your motivations are and who is underwriting the effort. as an investor in various asset classes it is always useful to see how one’s savings are being managed truly and i’d like to add that this type of obfuscation exits in many other parts of the investment management industry.

    1. Yves Smith Post author

      No one is “underwriting” this effort. Don’t try denigrating our work with that sort of cheap shot.

      I suggest you familiarize yourself with the history of this blog. This isn’t the first time we’ve been early to call out widespread misinformation and abuses on the finance front.

      And your “everyone else does this in other asset classes” is also inaccurate. First, in no other investment strategy has the SEC said that over 50% of the providers are stealing from investors or have other serious compliance failures. Second, no other type of investment manager has insisted on across the board secrecy. As we’ve indicated, this is the only type of investment where there is nothing approximating an industry-wide disclosure of performance, and as a result, pretty much no adequate studies on performance. Similarly, in no other strategy have the fund managers insisted (and until recently, gotten away with) having their investor contracts treated as trade secrets in their entirety and shielded from public scrutiny.

  8. Patrick Gregory

    Yves, thanks for your reply. Since I am not a resident of CA, not sure my input there will be of much help. However, I will put something together in case it may help. But I know some people who do live there and I will pass this along. Also, I wish to note that I made a spelling error. Name is not Chaing but rather Chiang. I point this out so that others who may read this and hopefully also contact Mr. Chiang, would have the correct spelling.

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