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.