Do you have any idea whay we have to read about Calpers problems in the Wall Strreet Journal, instead of in the Chronicle? Journalistic incompetence is certainly a big factor, but the sort of problems pointed out in this article are simply accepted liberal practice. What's wrong with putting Willie Brown on the Calpers Board?
That's the way the liberal game works. Brown, whose entire sphere of expertise, insofar as I can tell, is in keeping up his level of personal influence in whatever is going down. And, in buying Brioni suits with the proceeds, of course. Read all of the article for the full story of this political mess.
How the have mighty fallen. And how quickly. For decades, Calpers, the giant California state pension fund, set a standard of excellence in investment performance and probity. Lately, however, Calpers has become the poster-plan for bad performance, cronyism, and lousy corporate governance. And it's about to get worse.
Calpers's slide is a familiar tale of California politics, and one almost ordained given the makeup of Calpers's board of trustees. There are 13 members--six elected by members of Calpers, four appointed by the governor, and three state officials designated by statute.
Since Governor Gray Davis has enormous influence over board membership, it's no surprise that a majority represents, or is supported by, labor or the Democratic Party. But Mr. Davis's choices to run the largest pension fund in the country are especially questionable. His most recent appointee, San Francisco Mayor Willie Brown, is a classic political favor-grantor and insider. And a great chum of Mr. Davis.
Under this board, investment strategy has become increasingly twisted toward what the board calls socially responsible investing, but what others see as the pursuit of the political dictates of its union-affiliated members. Some also detect an investment strategy designed to reward the Democratic faithful.
Last year Calpers invested $100 million in a real estate partnership run by Richard Wollack, a major fund-raiser for Mr. Davis. Calpers also invested more than $760 million in funds run by Ronald Burkle, a big contributor to Mr. Davis and to two state officials who served on the board, Treasurer Philip Angelides and Controller Kathleen Connell. Mr. Burkle has also contributed to the various campaigns of Willie Brown and has employed Mr. Brown to do legal work for his companies. Both Mr. Brown and Mr. Angelides (former state Democratic Party chairman) voted in favor of giving $760 million to Mr. Burkle. The state's taxpayers deserve to know how this not-so-little investment turns out.
Well, during this period of increasing politicization Calpers's investment returns have taken a dive. Since 2000 the fund's investments have underperformed other large pension funds. In the three years ending September 30, 2002, returns posted a negative 2.5%.
Between June 2000 and the end of October 2002, Calpers's assets dwindled to $136.6 billion from $172 billion--a decline of more than 20%. If returns don't improve, the fund may show unfunded liabilities by the end of its fiscal year.
Into this dangerously lethal mix of politics and desperation comes the election of a new president by the Calpers board next month. The first two candidates to declare themselves were Sean Harrigan, a boss of the Food and Commercial Workers Union who became a Calpers board member after Governor Davis appointed him to the State Personnel Board, and Bob Carson, a retired general counsel for the State Department of Transportation. Then a third candidate popped up--with the support of Mr. Davis--Mayor Brown.
If Calpers were a private investment fund, this would all be hilariously high comedy. But Calpers is a public fund. Ultimately the buck stops with the taxpayers of California. For them, it might turn out to be pure tragedy.