Undisclosed luxury travel centre of CalPERS probe

The pre-2008 trips - paid for by private equity and real estate GPs - related only to firms in which the US pension owned a management stake or on whose LP advisory boards it sat.

Senior investment officials from the California Public Employees’ Retirement System took undisclosed trips around the world, paid for by firms seeking to win business from the $210 billion pension, according to court documents.

CalPERS senior portfolio manager Joncarlo Mark testified 29 July at pretrial proceedings for the state’s corruption investigation that he took 10 to 12 trips on private jets to destinations including New York, Las Vegas, Mumbai and Shanghai, according to a copy of his testimony obtained by PEM.

Mark added that financial firms also paid for dozens of other trips for him on commercial airlines as well as for meals at expensive restaurants. He did not disclose some of the trips on forms that pension fund employees must fill out when accepting gifts valued more than $50.

CalPERS has a clear and concise policy that I instituted last year that states no member of our staff will take or receive gifts or travel from investment or business partners.

Anne Stausball

In response to a surge in media coverage following Mark's testimony, CalPERS issued a statement which clarified the pension stopped permitting such travel in 2008. Prior to that it allowed the trips to take place only if the pension professional was travelling in order to attend a mandatory LP advisory board meeting, or if the private equity or real estate manager paying for the travel was a firm in which CalPERS owned a stake. This latter situation meant the cost was incurred by an entity in which CalPERS was part-owner, thus the pension effectively shouldered some of the cost.

“Today, CalPERS has a clear and concise policy that I instituted last year that states no member of our staff will take or receive gifts or travel from investment or business partners,” chief executive Anne Stausball said in the statement. “In light of [Thursday's] reports, I’m directing all staff to look back into their records during their career at CalPERS to ensure that they are in compliance with CalPERS policies, state laws and guidelines and to take immediate steps if they are not in compliance to remedy the matter.”

The pension's travel policy today prohibits external managers from arranging travel for its staff, which must arrange it so that it meets state per diem policies. CalPERS then reviews the costs and expenses them back to the external manager.

Details about the luxury travel were revealed in a court filing from Alfred Villalobos’ law firm, Cooley. Villalobos is being sued by California Attorney General Jerry Brown for fraud. Villalobos denies the allegations.

In May, Brown filed a civil suit against Villalobos, his company ARVCO Capital, and former CalPERS CEO Federico Buenrostro, charging that Villalobos “attempted to bribe” the head of CalPERS alternative investment programme, Leon Shahinian.

The complaint details an allegedly lavish trip that Villalobos took with Shahinian to New York to attend a benefit honouring Apollo head Leon Black. Following that trip Shahinian allegedly “recommended” a $700 million investment in Apollo Global Management without dislosing the “all-expenses paid trip” to New York.

Brown has since frozen Villalobos’ assets in an effort to recoup more than $60 million in commissions that Villalobos earned during the period alleged in the complaint.

According to Villalobos’ law firm, Cooley, the court filings reveal a culture at CalPERS where it was common for private equity firms such including Carlyle Group, Yucaipa, and Oak Hill Capital Partners to fly CalPERS investment officials around the world.

CalPERS’ Mark also testified that he has accepted personal gifts, including meals, paid by such firms to help them win CalPERS business. Mark said he had also received bottles of wine, boxes of chocolates, and books.

Mark and a CalPERS spokesperson could not be reached by press time.

CalPERS’ ongoing efforts at reviewing fees shed new light on its relationship with placement agents. The pension fund conducted a months-long review on its relationship with Apollo. The review was sparked after CalPERS discovered last year that Apollo had paid Villalobos more than $60 million over several years to solicit the pension for more than $3 billion.

In April, Apollo announced it would lower management and other fees it charges to CalPERS by $125 million over the next five years. It's not clear if the pension was prepared to not fully fund its existing commitments to Apollo.

Apollo manages a total of about $4.3 billion for CalPERS, but the fee reductions will take place within the $1.8 billion of sole managed accounts the firm runs for the pension. CalPERS also owns a 9 percent stake in Apollo's management company, which it bought in July 2007 for $600 million – the investment had lost $475 million of its value as of 30 September 2009, according to CalPERS documents.

In a 10 Aug. statement, CalPERS CEO Anne Stausboll said, “Regarding recent headlines, please remember that it was the current leadership at CalPERS that launched the initial investigation of the placement agents controversy. Attorney General Brown praised us for our ‘full support and assistance’. It was also CalPERS that adopted strict new placement agent disclosure policies and is pushing for tough legislation to prevent abuses in the future. We were notably aggressive in restoring $165 million in questionable fees.”