Why Not Listening to Naked Capitalism Is a Mistake (and We Mean You, CalPERS)

For last few years, we have been laboring earnestly to get CalPERS to travel on a straight and narrow path, with occasional success despite their dogged resistance. We hope you recognize how important these efforts have been for CalPERS beneficiaries, California taxpayers, public pension fund governance generally, and in helping in a small way curb bad conduct in private equity. So we hope you’ll enable us to apply even more pressure by visiting the Tip Jar and helping fund our work.

For instance, we exposed the fact that they had no idea what they were paying in private equity carry fees and worse falsely claimed they could not get the information. In less than six weeks, they did a volte face and were scrambling to collect the information. When they published the results, it was hailed as a landmark.

Similarly, CalPERS attempted to give private equity a free pass on risk via a stealth plan to subjecting it only to an “absolute return” return requirement. Not only is that bogus methodologically, it also would have been a complete departure from their framework for measuring risk and return and set a dangerous precedent that would have served as a powerful justification for other public pension funds to emulate them and thus put even more money into private equity. We sounded an alarm in a Bloomberg op ed. Even more important, Eileen Appelbaum and Rosemary Batt, scholars who are recognized private equity experts, heard our alert and quickly wrote an op-ed for the Sacramento Bee criticizing the plan. CalPERS’ staff retreated from their scheme the very next day.

In addition, last year, we warned about how disturbing it was for CalPERS to have appointed a scandal-ridden attorney, Robert Klausner, in the critically important role of fiduciary counsel. In addition of being involved of decades of questionable pay-to-play practices, Klausner was also known for telling public pension funds whatever they wanted to hear, regularly with not just strained justifications, but readings that other attorneys deemed to be flagrant distortions. Klausner resigned from the CalPERS account on terms we are told were not entirely voluntary less than a year after we started scrutinizing his activities at CalPERS.

Yet CalPERS continues to resist our efforts to keep them out of trouble. At our last visit to a board meeting, the chairman of the investment committee cut us off even though CalPERS has not passed a regulation as required under the Bagley-Keene Open Meetings Act, to limit the time of public comments.

Former CalPERS board member Michael Flaherman, now a visiting scholar at UC Berkeley, felt compelled to chide the board:

Michael Flaherman, Visiting Scholar, UC Berkeley: I was really disappointed by what happened with Miss Webber. You know, Mr. Jacobs is an effective advocate. He was a litigator for many years. No matter how illegal or even outrageous the behavior of his client, he’s going to get up and say, make an argument for why it was legal. And it’s pretty transparent when he says, oh, it was legal, but don’t worry we’re bringing back a regulation.

And it was disappointing to me as a beneficiary and as a former member of the Board to see it as well, because what was the point of cutting off this woman? I suspect I think that many of you don’t know actually that Susan Webber is actually one of the most important financial commentators in the United States. I don’t think I’ve ever talked to a financial journalist at any great length without them actually bringing up the fact that they read her avidly. In other words, she is the sort of central clearinghouse on a number of issues, private equity being the one that has the most nexus to this organization, and opinion maker.

Similarly, all of the…many of the members of the staffs of the congressional committees that are responsible for finance read her avidly. She is read avidly at the Securities and Exchange Commission among the staff.

It was a mistake to cut her off. As far as I could tell actually, she was actually kind of praising you, which I don’t think I’ve ever heard her do, and, you know, and I also want to be clear. I’m not a shill for her. I’ve actually had very heated disagreements with her at times actually, and some of which actually related to some of her criticism of this organization.

But I was the one, as you may know, who brought up the fact that there are no regulations permitting time limits on public comments. And it’s been disappointing to me that nothing has happened with it until today, where it got called publicly, and in a way that was embarrassing.

And, you know, and there is, there’s an age old legal doctrine I think that you all need to reflect on, which is, you know, which is, I took Latin for many years, so I’ll say it in Latin, right, tacetus consensat importat, which means silence implies consent. If you sit here and an action is taken and you say nothing, then the world is left to believe that each of you supports that action. And that’s very disappointing. Thank you.

CalPERS’ general counsel, Matt Jabobs (the “Jacobs” Flaherman mentioned) made flagrant misrepresentations to the board on this very topicat the last board meeting, so we need to keep the heat on. Back our initiatives to hold public officials accountable. Donate now to Naked Capitalism. If you can’t afford much, give what you can. Whether you can contribute $5 or $5,000, it will pay for itself, I guarantee you. This isn’t just giving, it’s a statement that you are want a different debate, a different society, and a different culture.

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  1. Sluggeaux

    As someone who has been a CalPERS member for decades, and someone soon to be a beneficiary, I am grateful for the reporting done by Naked Capitalism. We live in dangerous times in which institutions upon which we depend in order to go about our everyday activities and to live our comfortable lives are being operated for the benefit of a few looters on Wall Street and a handful of their cronies inside government.

    The collapse of news reporting under monopoly ownership means that we have to support the reporting being done by Naked Capitalism, and I sent my donation early! Readers, please support this vital beacon of Justice Louis Brandeis’ most memorable aphorism:

    “Publicity is justly commended as a remedy for social and industrial diseases. Sunlight is said to be the best of disinfectants; electric light the most efficient policeman.”

  2. flora

    CalPERS board doesn’t know what it doesn’t know. The staff appears to like it that way, blocking “outside” expert (NC and others) information as much as possible from reaching the board. Only the “approved experts” may speak.
    Here comes a ramble leading to a point.

    Before accurate longitude could be calculated at sea (before about 1800) many ships were lost by crashing on the rocks in foggy weather, because the captains weren’t sure of their real position. (Think of the phrase: “I haven’t the foggiest idea.”) In the British Royal Navy the calculation of position was the captain and flag officers’ duty. It was considered mutiny if a common seaman let it be known he was calculating the ship’s position.
    In the early 1700’s 5 British warships were returning to England after battle with the French fleet in the Mediterranian Sea. Several days of foggy weather left the captain, Admiral Sir Clowdesley Shovell, and the flag officers unsure how far west they were of the Ile d’Ouessant. In the fog, they decided that they were far enough west of the Ile to sail straight north. A skilled seaman who had been keeping his own calculations, and realizing the danger, put fear for himself aside and approached the flag officers with a warning that the ships were still too close to the Ile to sail north. The seaman was tried and found guilty of mutiny and hanged. Less than 24 hours later the 4 of the 5 warships crashed on the rocks and went down. Nearly 2000 men died.

    I guess my analogy about ignoring expert testimony because it comes from outside the officially approved channels doesn’t need elaboration. So, of course, I’ll elaborate. CalPERS is sailing in dangerous economic waters. They would be wise to listen to Yves and other experts who are telling them their fund’s real position is dangerous.

    “For instance, we exposed the fact that they had no idea what they were paying in private equity carry fees and worse falsely claimed they could not get the information.”

    Thanks to Yves and NC for continued reporting on pension funds.

    1. Norb

      Bravo flora-

      The very best of comments and storytelling.

      As is with all truth seekers, or truth for that matter, the story leads to many more connections and revelations. I’m picturing myself sitting around a fire listening to a great story that will change how I see the world and the people in it. Wonder indeed.

      Thanks for that. Cheers.

  3. ChrisPacific

    I see Clive quoted the Queen of Hearts from Lewis Carroll in the linked article. Here’s another one:

    At this moment the King, who had been for some time busily writing in his note-book, called out ‘Silence!’ and read out from his book, ‘Rule Forty-two. All persons more than a mile high to leave the court.’
    Everybody looked at Alice.
    ‘I’m not a mile high,’ said Alice.
    ‘You are,’ said the King.
    ‘Nearly two miles high,’ added the Queen.
    ‘Well, I shan’t go, at any rate,’ said Alice: ‘besides, that’s not a regular rule: you invented it just now.’
    ‘It’s the oldest rule in the book,’ said the King.
    ‘Then it ought to be Number One,’ said Alice.
    The King turned pale, and shut his note-book hastily.

  4. TheCatSaid

    Thank you Yves for uncovering CalPERS problems and combining this with recommendations–for those wise enough to listen.

    I hope the CalPERS Board wakes up before it is too late.

  5. RUKidding

    Thanks Yves & keep up the good work! Much appreciated, esp your dogged efforts re CalPers. I hope the CalPers Board can awaken & start following your good advice. Speaking as a CA taxpayer & CalPers contributor, I want OUR money invested wisely & correctly.

    Cui bono? It should be all CA citizens, not greedy corrupt Wall St hedge funds.

  6. Norb

    What gives me hope for the future is the slow grinding progress being made to bring the looting class to account. Yves and the CalPERS saga is just one example that illustrates this phenomenon.

    Do your job, do your duty, could best sum up the situation that needs correcting. Neoliberalism has subverted the clear definitions of social responsibilities and accountability needed for a just society. Throwing the bums out is next. This can only be accomplished with a clear understanding of how the system is being subverted and having experts on your side, showing the way.

    The wedge issue of our times is to drive a wedge into the heart of the elite class. Make them state publicly what their sense of duty and honor are based on, as illustrated by their actions, not their words. Only by their actions, do they deserved to be followed and respected.

    When ordinary citizens finally realize that in the eyes of certain elites they are considered only as ignorant or naive consumers waiting to be fleeced, change will come. This is the discontent that must be redirected. Human beings are not just consumers.

    The narrative for duty and honor for decades now has been to make as much money as you can, kill Muslims, and soon to be kill Russians- and make money. By god, how to break this endless destructive cycle.

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