The Wall Street Journal published a fairly long article on the news that CalPERS board member JJ Jelincic is not running for a third term on the CalPERS board. I knew Jelincic intended not to run again as of last November. Former CalPERS board member and private equity expert Michael Flaherman and I both tried to talk him into relenting. Bear in mind that Jelincid made his decision well before the board started its witch hunt against him in January with Bill Slaton’s astonishing demand that Jelincic resign or that the he be forced off. As we discussed at considerable length, no one has yet to present any evidence backing the defamatory allegations made against Jelincic, nor did the board have the power to oust Jelnicic.
Jelincic, who is 68, gave two reasons for his decision last year. His wife wanted him to retire. He was also concerned that some older CalPERS board members were unable to do their jobs properly due to cognitive decline. While he didn’t see any current problems, with board terms lasting four years, he didn’t want to take that chance.
He will depart from the board when his term concludes in January, ending an eight-year tenure during which he pressured the $320 billion pension fund to cut costs and rely less on Wall Street money managers.
His tenure also was marked by conflicts with colleagues who objected to his public criticism of the pension and its board.
Mr. Jelincic announced his decision to leave the board on a similar note. In a statement provided to WSJ Pro Private Equity, Mr. Jelincic said Calpers’s board lacks accountability and fails to oversee the decisions of the pension’s investment professionals.
“It is clear to me that this board has abdicated its responsibilities to challenge, monitor and supervise the staff,” Mr. Jelincic wrote. The Calpers board hadn’t provided comment on the matter by press time….
The questions he raised about private-equity fees have sparked discussion throughout the pension world….
“The private-equity industry has been gaming pension funds for a long time,” Mr. Jelincic said in an interview. “And pensions have not pushed back or understood how they have been paying.”..
In his drive to make Calpers demand more fee transparency from asset managers, Mr. Jelincic at times publicly clashed with other members on the 13-person board. “I wish I had been more successful in building coalitions,” he added….
The tensions on Calpers’ board were reported widely in the press after video of a board member accusing Mr. Jelincic of leaking documents was posted on the blog NakedCapitalism.com.
The article also gave prominent play to the fact that Flaherman, who has a national profile for his work on private equity and at CalPERS, is running for Jelincic’s seat:
Three candidates have so far filed to run for Mr. Jelincic’s seat, according to a Calpers statement on Friday: Richard Costigan of California’s State Personnel Board; David Miller of the California Department of Toxic Substances Control; and Felton Williams of Long Beach Community College District.
Michael Flaherman, a former Calpers board member, also intends to run for Mr. Jelincic’s seat. Mr. Flaherman, who previously served as an executive with investment firm New Mountain Capital, is a visiting scholar at the University of California, Berkeley, who has studied public pensions and white-collar fraud.
Mr. Flaherman is known in pension circles for his research into private equity’s complex and opaque fee practices. A frequent public commentator during Calpers meetings, he has asked the pension to provide greater disclosure on fees and raised concerns about private-equity funds’ use of leverage.
Keep in mind that the board seat filing deadline was yesterday and then has been extended for Jelinicic’s seat by virtue of the fact that he is not running for re-eletction. There’s an art form to issuing damning-with-faint-praise statements when controversial figures depart. CalPERS had had plenty of time to issue a statement, as well as respond to the Journal’s inquiries, yet didn’t have the class to acknowledge Jelincic’s eight years of service.
Instead, after the article went up and CalPERS could see it wasn’t coming off well in its PR war with Jelincic, Board President Rob Feckner, saddled up or was saddled up to respond. From the updated version of the article:
Rob Feckner, president of the Calpers board, disputed Mr. Jelincic’s claim, saying in a statement late Friday, “The idea that the Calpers board has failed to provide oversight and that the board and staff are not transparent is nonsense.”
Mr. Feckner added: “As board members, we review detailed information during our meetings that help us guide the organization—and if we feel we need more, we ask for it and we get it.”
It’s worthing noting that Feckner, unlike Jelicic, was on the CalPERS board when it choose Fred Buenrostro, convicted and now serving time in Federal prison, as CEO. Feckner was board chairman while Buenrostro was taking bribes. So how good was board oversight then?
Yet in the face of such a fundamental governance failure, the CalPERS board has going even further in the wrong direction by ceding more power to staff, via by accepting staff’s recommendation to no longer had the Chief Actuary, the General Counsel, and the Chief Investment Officer report directly to the board.
It’s also easy to see how inadequate a job of oversight the board does by watching CalSTRS board meetings, which are also live-streamed and available on the Internet. The CalSTRS board is vastly more knowledgeable about investments, regularly questions staff and consultant recommendations, and engages in thoughtful debate. The contrast with CalPERS is night and day.
Similarly, the claim that CalPERS is transparent is ludicrous. Board member Michael Bilbrey described how CalPERS’ staff engages in pre-board meeting briefings of board members. That is a clear-cut, systematic violation of the Bagley-Keene Open Meetings Act. All board deliberation is to take place in public session, save certain categories that are relegated to “closed session”. Even then the board must provide a notice of closed session agenda items and cite the statutory authority for keeping them under wraps.
Having staff provide information in advance, with the public having no opportunity to participate, is what is called a serial meeting (of the “hub and spoke” type) and has been cited explicitly by the state Attorney General as a Bagley-Keene violation.
Similarly, Jelincic twice had to resort to the Public Records Act to obtain information when staff refused to provide it to him. It’s simply unheard of to deny an information request of a board member, particularly for information that any member of the public can get. And proving how badly captured the board is, some board members, like Priya Mathur, criticized Jelincic for burdening staff, as if asking them to do their jobs is a hardship.
The Board recently changed asset allocations. Why? Secret! What factors were considered? Secret! What costs were evaluated? Secret! Was the impact on beneficiaries and employers considered? Secret!
While we have many posts documenting how CalPERS’ claims to adequate governance and transparency are at best self-delusion and at worst a Big Lie, these two give a sense of how rotten things are in the state of CalPERS:
A sample from the second article:
And as Andrew Silton, the former Chief Investment Advisor to the State Treasurer of North Carolina, wrote on his website:
What’s the best defense against capture? A strong staff and informed trustees. The CalPERS video strongly suggests that CalPERS is lacking on both fronts.
The proof is in how the board relentlessly tried to undermine Jelincic, who also had more investment expertise than any other board member. As he wrote in statement:
I originally ran for the CalPERS Board because I thought the Board was not doing its job and was too often being manipulated by staff. After eight years on the Board, I can tell you it was even worse than I realized.
The best hope for CalPERS is that the two reform-minded candidates, Mike Flaherman and Margaret Brown, who is challenging incumbent Michael Bilbrey, are both elected. I hope readers in California will support their campaigns.