Tony Butka, now retired, was California’s Presiding Conciliator of its State Mediation & Conciliation Service and is now a CalPERS beneficiary. He is so disturbed about what he depicts as misconduct by CalPERS’ staff, starting with its CEO Anne Stausboll, and the remarkable inaction or connivance by CalPERS’ board that he wrote a stinging letter to board member John Chiang, which we’ve embedded at the end of this post, as well as writing as article, Misconduct at CalPERS and Why We Should Pay Attention, at CityWatch.
The reason Butka’s alarmed reaction is so important is as mediator, Butka has seen a wide range of conduct across California government bodies. He’s thus particularly well positioned to judge whether what has come to light at CalPERS is within the bounds of defensible conduct. And this is not the first time that Butka has written to a CalPERS board member expressing his concerns about CalPERS’ handling of public records requests. You’ll notice his earlier missive was tame compared to this one.
I strongly urge you to read the letter in full. Butka’s conclusions are damning. He deems Chief Investment Officer, Ted Eliopoulos, the head of private equity, Réal Desorchers, and private equity professional Christine Gogan to have been so dishonest with the board that they all have should have received a notice of intent to discharge. From his letter:
If it takes from 2005 to 2015 to handle one scandal, how long is it going to take to handle the recent revelations that as of the August CalPERS Investment Committee meeting, key staff members of CalPERS were, putting it politely, deliberately giving inaccurate information to the CalPERS Board regarding the same private equity investments that were at the heart of the Buenrostro/Villalobos scandal? A decade? Almost worse, elected Board members at the meeting were evidently too busy defending staff members to remember that when they were running for office, there was a little thing called ‘fiduciary duty’ which goes with becoming an elected CalPERS board member. Maybe they should read up on it…..
CalPERS CEO Anne Stausboll has made it clear over the years that her Open Letter to Stakeholders of 2011 promising honesty, openness, and transparency was just so much fluff. Her actions demonstrate that she is going to support her staff, right or wrong, assuming that she has the technical expertise to understand the underlying right or wrong of the underlying subject matter.
I find her position unfortunate. IN a career working mostly in the public sector, I believe the single issues that makes most citizens mistrust government employees is abuse of their power as public servants. The recent flurry of news posts about the conduct of staff during the August CalPERS Investment Committee meeting, as demonstrated by the actual videotapes which are publicly available, make a case that Réal Desrochers and Ted Eliopoulos, as well as Christine Gogan, are well compensated employees who have breached that trust.
In most California jurisdictions I have worked with over my career, dishonesty and lying, be it explicit or implicit, is conduct unbecoming a public employee and is ground for a Notice of Intent to discharge.
Butka also criticized Chiang, as we did, for asking the SEC to intervene in private equity rather than have CalPERS (and CalSTRS, on whose board Chiang also sits) do a better job of due diligence, negotiating, and oversight:
….anyone with a brain knows that waiting for the SEC or Federal Government to do something about the financial services industry is simply a rewrite of Beckett’s Waiting for Godot.
Butka expressed additional concerns in his CityWatch article (emphasis original):
CalPERS is also far and away the largest public pension plan in the U.S., with about $300 billion in assets, covering over 1.5 million employees, retirees and their families. When CalPERS plays in the markets, the markets take notice. No leverage is required when a pension plan is that big and directly controls that much money.
So when it appears that high level staff members at CalPERS are feeding a line of baloney to their Board of Directors — and the Board is ignorant or indifferent enough to eat it up — it’s a big deal – an especially big deal when it concerns the private equity investments made by CalPERS which is over $30 billion. These are the investments they rely on to make that annual seven percent revenue increase required to keep the funds on target.
Private Equity to the rescue, promising all kinds of great returns. Except, as it turns out, they just might be lying through their teeth. And the public can’t find out because Private Equity requires non-disclosure agreements (NDA’s) as a condition of giving them our money. That’s right, CalPERS refuses to cough up information about fees, expenses, internal controls, and subscription documents on the grounds that they are proprietary confidential information.
It’s not surprising that a lot of the promises made by private equity funds just might not be true. All the hidden fees and charges they siphon off from their investment activities result in substantially less return on investment (ROI) for CalPERS. It also makes it easy for bad actors to cheat. So when you combine that nasty truth with the spectacle of a group of highly paid CalPERS employees misrepresenting these realities to their bosses at the Investment Committee meeting, it’s legitimate to wonder if CalPERS is getting ripped off.
If you are in California, or have family, friends or colleagues who live there, I hope you’ll sent them the Butka letter and article links. CalPERS and CalSTRS are the two biggest public pension fund investors in private equity, yet they actively support the general partners’ code of omerta that allows fee gouging and grifting to flourish. And since public pension funds are underfunded, when private equity engages in rent extraction, the shortfalls will ultimately come out of taxpayer pockets. When the SEC’s Andrew Bowden warned that private equity was picking investors’ pockets, it was tantamount to saying they were picking taxpayer pockets.
It’s time to demand more accountability from the staffs and boards of these powerful investors. John Ching, the state Treasurer, and Betty Yee, the state Controller, each sit on CalPERS’ and CalSTRS’ boards. if you have not written them yet, I urge you to do so, particularly regarding the obvious governance deficiencies at CalPERS. Their contact details:
Mr. John Chiang
California State Treasurer
Post Office Box 942809
Sacramento, CA 94209-0001
Ms. Betty Yee
California State Controller
P.O. Box 942850
Sacramento, California 94250-5872
Please also contact your local newspaper and television station, as well as the Sacramento Bee. Tell them you think this story is important for all California taxpayers and you wonder why they haven’t taken it up. You can find the form for sending a letter to the editor here.
I hope Butka’s letter will inspire you to follow suit with your own letters and calls.
Butka letter to Chiang re CalPERS
Great to see the heat turning up. I hope those in California are paying attention like Mr. Butka and continue to put real pressure on the members of CalPERS who are not fit to perform their duties.
Private equity must die.
Aren’t criminal charges more appropriate rather than simple firing or angry demands? Criminal investigation of the entire setup from the Board on down to the equity “managers”? Of course, Obama would never go for THAT because Wall Street is above the law and God as far as he’s concerned but still…
State-level charges of breach of fiduciary duty should be possible, at which point the non-disclosure agreements become unenforceable (can’t say no to a subpoena just because you have an NDA with someone). All it would take would be a prosecutor willing to take on an unglamorous case – or one nearing retirement and worried about the health of their own pension.
The main problem here seems to be that the vast majority of the board is complicit. Apart from JJ, they’re pretty much all at fault. So what are the odds that the whole board will see the error of their ways? I don’t know for sure, but the odds can’t be great. Are these clowns elected or appointed? Appointed, I assume.
Getting a group of people who have convinced themselves that they are professionals that they are, in fact, acting like a bunch of incompetent nincompoops is always going to be a hard sell. I’d start working on the people who appoint the board members, raising a stink with whoever is above them on the totem-pole. It seems unlikely that the whole board is going to do a 180 and start behaving responsibly…at least, it does to me. I’d love to be wrong.
Yeah, that’s the basic collective action problem we are facing. Our government is so big – and people’s time is stretched so thin by the nature of work in our society – that it is impossible in practice to maintain constant vigilance on every issue. The “people who appoint the Board” are the people of California. The State Treausurer’s office being addressed here is literally the office that the current CIO Eliopoulos came from previously.
5 of the 13 Board members are elected “from the rank of public employees”.
Others are appointed; others are state public office holders.
Compensation varies greatly within the Board, depending on their category ($0 to six figures). Those taking leave from their regular job self-report how much time they put in to determine their compensation.
Wow! What a letter!
Note that he doesn’t say, “…the perception of…” It’s amazing simply to find someone who’s had responsibility whose mind is free enough of propaganda and double speak to just come right out and say it, abuse, abuse of the public trust and abuse of the public weal; abuse that under any normal system merits discharge (I would have preferred, “sack their sorry asses, but hey) rather than, “let’s go out there going forward and be more careful about appearances."
A stray cynical thought is that being retired gives one latitude to be truthful, but still it’s refreshing and important to see such a letter.
“….anyone with a brain knows that waiting for the SEC or Federal Government to do something about the financial services industry is simply a rewrite of Beckett’s Waiting for Godot.”
Wow… if they had any feelings that one would have to hurt…
Implied in that is the widespread understanding that nobody can reasonably claim that they have discharged their fiduciary duty by reporting fraud to the SEC or Federal Government.
Speaking of things that make people mistrust public servants.
Be sure to read the entire fax as well – contains the gem that Stausboll’s “open letter to stakeholders” which promised openness, etc., has been removed from CalPers’ website.
@diptherio on march 21, 2014 at 8:00 am:
‘Anybody who sends official correspondence in “Comic Sans” is alright with me.’
Ha! Gotta love the comic-sans fire! Some artist type should turn his letters into a graphic novel.
I LOVE Comic Sans!! Shows the correct amount of “respect” for the correspondence.
Mr. Butka’s letter is a scathing condemnation of the CalPERS staff’s failure to meet its fiduciary obligation. The staff has earned every word.
Thanks for continuing PE reporting.
There’s a curious coincidence that should also be noted. Phil Angelides was Chiang’s predecessor as California Treasurer. This is the same Phil Angelides who was the Chairman of the Financial Crisis Inquiry Commission. During the time of the commission’s investigation I and many others felt he was just awful, and was a major factor in its abysmal performance. Having lived in California during Angelides’ time in office, I wasn’t surprised at anything other than his appointment in the first place.
It probably should also be noted that both Dianne Feinstein and Nancy Pelosi have centimillionaire husbands who are huge investors in California real estate; is it far-fetched to suppose they have stakes in private equity firms?
“Forget it, Jake, it’s Chinatown.”
CalPERS CEO Anne Stausboll and Chief Investment Officer Ted Eliopoulos were also Angelides proteges. Need I say more?
Perhaps not enough has been made of the earlier CALPERS scandal involving former CALPERS board member Alfred Villalobos and private equity “bribes”.
A person might argue this prior incident would make CALPERS far more careful, and reform minded, when dealing with private equity investments.
Per this January 14, 2015,link: http://www.latimes.com/business/la-fi-figure-in-calpers-scandal-dies-20150114-story.html
“Villalobos, a former vice mayor of Los Angeles and CalPERS board member, was charged with bribery and corruption in connection with his efforts to influence the pension funds’ investment decisions.
Villalobos, who pleaded not guilty in the case, earned about $50 million as a middleman in winning CalPERS investments for private equity clients.”
He committed suicide rather than go to trial:
If CalPers explodes at some point, down the line, who is left holding the bag? Will it be the employees who lose their retirement? Or does the state, cities, counties still owe the money — and will they be stuck having to pay. Is CalPers chaos a threat to the municipal bond market in California?