CalPERS scandal sidelines well liked PE chief

Leon Shahinian, the 12-year pension veteran described as ‘honest’, has been placed on leave amid a burgeoning pension scandal in California.

The career of Leon Shahinian, who has run the alternative investment programme at the California Public Employees’ Retirement System since 2004, may be damaged because of his alleged relationship with a placement agent who is being sued by California.

Shahinian, who joined CalPERS in 1998, was placed on leave recently after allegations that he failed to disclose a lavish trip paid for by Alfred Villalobos, who runs placement firm ARVCO. Villalobos, a former CalPERS board member, is being sued by California’s Attorney General for alleged fraudulent activities relating to his work soliciting commitments from the $209 billion pension.

The AG’s complaint against Villalobos describes a fiduciary caught in the middle of a corrupt old-boy network. Shahinian has not been accused of wrongdoing, though his trip to New York is described in detail in the complaint.


The complaint states that Shahinian was “instructed to build a closer relationship with Villalobos” by then-CalPERS chief executive Federico Buenrostro, a close friend of Villalobos who has also been named in the suit. At the time, Villalobos’ firm, ARVCO, was working for Apollo placing funds with CalPERS and trying to convince the pension to buy a stake in the firm.

In May 2007 Shahinian accepted a trip to New York with Villalobos that involved private jet travel, a two-room suite at the Mandarin Oriental, and a gala at the Museum of Modern Art (MOMA) in honour of Apollo Global Management founder Leon Black.

At the event, Shahinian met Black and Black’s wife.

The trip was funded by Villalobos and/or his company ARVCO, who was eventually reimbursed for the trip, for at least $63,000, by Apollo.

Shortly after Shahinian returned to Sacramento, he received three bottles of champagne from Villalobos, including one bottle valued at $200, the complaint said. Two weeks after the trip, the complaint alleges Villalobos faxed Shahinian the term sheet for a proposed $700 million investment in Apollo.

One month after the trip, Shahinian made a presentation before the CalPERS investment committee to recommend the $700 million investment in Apollo, but “did not disclose to the CalPERS’ Board that he had just returned from an all-expenses paid trip with Villalobos to New York to attend the MOMA Event”, according to the complaint.

CalPERS would eventually pay $601 million for a 10 percent stake in the firm, the complaint said. ARVCO collected a $13.2 million fee for its placement work.

Last Thursday, when the complaint was made public, a CalPERS statement confirmed that Shahinian has been placed on administrative leave.

‘Mr. Inside’

Those who know Shahinian describe him as dedicated to his work at the pension but reserved. “I always felt Leon was honest,” one source who has interacted extensively with CalPERS told PEO last Friday. “[He was] very shy, very much Mr. Inside trying to coordinate things between staff and board, not what I would consider to be a PE expert but a politician, needed in a political organisation.”

Shahinian could not be reached for comment last Friday.

Shahinian’s career at CalPERS started in 1998, when he was hired from Foundation Health Systems, where he worked as a fixed-income portfolio manager. According to a November, 2004 article in PEI, Shahinian looked at the open position at CalPERS because he always wanted to be an investment banker.

He worked under the pension’s former alternatives boss, Rick Hayes, for a few years as Hayes was growing

I always felt Leon was honest.


the pension’s private equity programme into one of the biggest backers of private equity funds in the world.

Shahinian grew up in and around Sacramento all his life, even though his family was from San Francisco. He attended California State University, Sacramento, and got his first financial job as a credit analyst at Sacramento Commercial Bank. His next job was at Foundation, on his way to CalPERS.

Shahinian told PEI in 2004 that he wanted to travel more. While working under Hayes, Shahinian frequently held down the fort while Hayes traveled to meet GPs off-site. But he describerd travel as an employee of CalPERS to be difficult, because every trip had to be documented and justified to the board.

In 2007, Shahinian was interviewed by PEO about CalPERS’ attempts to reshape its private equity programme. At the time, he said the pension was looking to invest more money with fewer GPs. The pension, he said, would keep investing money with mega-funds.

“The best megafund managers will continue to outperform the public market by a pretty significant amount,” Shahinian told PEO. “And by that I mean by 1,000 basis points or more.”

One source who knows Shahinian said his decision to take the trip and not disclose it was a product of a weak system of governance at the pension rather than an indictment of the man’s character.

That system is now being systemically examined by the pension’s leadership, which has bolstered its disclosure requirements for placement agent fees, and introduced legislation for the state to treat placement agents as lobbyists, forcing them to report gifts and banning success-based “contingency” compensation.

If Shahinian is removed from the pension, it would be a sad career diversion for an “honest guy”, say sources, who generally had positive things to say about him.

A former colleague quoted by PEI in 2004 described him as “devoid of ego” and “a very hard worker who doesn’t get excited or emotional about things”.