By Lambert Strether of Corrente.
So, it’s not just Fortune and the Wall Street Journal; now it’s the FT piling on, but because Yves really is on vacation, the happy task of doing the happy dance falls to me. Here’s the scoop, from FT’s story headlined “Calpers’ support of private equity ‘propaganda’ slammed” this morning:
Joseph Jelincic, a board member of Calpers, which helps finance the retirement plans of teachers and firefighters, has sent a damning letter to Anne Stausboll, the pension plan’s CEO. He questioned the competency of Calpers’ investment staff regarding its private equity holdings.
(See the Appendix for posts giving plenty of detail on the competency of Calpers staff.)
Calpers employees were perpetuating the mythology of private equity managers by telling the board the fund was “receiving a better deal [from its private equity managers] than we actually are”, Mr Jelincic said.
NC readers will recall that Joseph Jelincic was the CalPERS board member who questioned Réal Desrochers in the video for which Yves provided extensive exegesis last week. Some of the mythology that Jelincic was talking about showed up in a deck prepared by CalPERS staff:
[JELINCIC: ] The [staff] presentation is good as far as it goes. It’s very high level. But one of the things that it did is that it assumed away the things like offsets and fee waivers and clawbacks and fund costs and preferred returns, which are all the areas that are creating the controversy.
These are the areas where the SEC has said limited partners are getting ripped off, where the IRS has said it looks like taxpayers are getting ripped off.
So how big is the rip off? How big are all those numbers that were “assumed away”? From the FT article, Oxford’s private equity expert Ludovic Phalippou:
“Calpers’ total bill is likely to be astronomical. People will choke when they see the true number.”
Of course, the biggest myth of all is that private equity delivers superior returns. As Yves has written:
A myth that has allowed private equity to persist in its predatory ways is that private equity delivers returns that investors can’t obtain through other investment strategies.
We’ve described the large body of research that demonstrates otherwise.
Perhaps there’s more on private equity returns to come.
Oh, here’s the link:
Yves Smith, a critic of the private equity industry on the Naked Capitalism website, said that the oversimplifications and mistakes made by Calpers’ management suggested it could not invest responsibly in private equity at all.
CalPERS has around $30 billion (of its approximately $300 billion total) invested — on behalf of pensioners like teachers and firefighters — in private equity, and that’s real money, even today. So you can see that the potential public policy implications of CalPERS management failures are substantial, especially given that, by all accounts, CalPERS is one of the best-managed funds out there.
It remains to be seen whether the CalPERS staff will treat Jelincic’s letter as a test of their public relations skills, or as something more serious; but that such material appears in the FT (albeit on the Labor Day weekend) would suggest that events are outrunning their ability to control the story. Pass the popcorn.
For those who came in late, here’s the entire series:
- CalPERS’ Private Equity, Exposed: Executive Summary
- Senior Private Equity Officers at CalPERS Do Not Understand How They Guarantee That Private Equity General Partners Get Rich
- CalPERS Staff Demonstrates Repeatedly That They Don’t Understand How Private Equity Fees Work
- CalPERS Chief Investment Officer Defends Tax Abuse as Investor Benefit
More to come.