Tuesday, April 1, 2014

CalPERS Gives PEU Information to Oxford but Not to Naked Capitalism

Reuters reported:
The California Public Employees’ Retirement System has lawyered up as it continues to face withering criticism from a financial blog that says the system is stonewalling its public records request. The system has brought in Steptoe & Johnson — the firm that ran CalPERS’ internal investigation into pay-to-play activities a few years ago — to help deal with a data request from blog Naked Capitalism in a situation that has escalated to almost absurd levels.
CalPERS is not talking, preferring to leave it to the lawyers to handle the situation.
The data in question runs from 1990 to the end of 2008.   Why would CalPERS freely share data with Oxford University researchers and not with a respected financial blogger?  Clearly they view one as an ally and the other worthy of lawyering up.

CalPERS invested $175 million in The Carlyle Group in 2001.  They purchased 5.5% of Carlyle, which fell to 4.2% by the time Carlyle went public in 2012.  At the time Reuters reported:

CalPERS received $225.2 million in carry, fees and distributions from its Carlyle stake. By adding these distributions to the $284.1 million current public value of CalPERS's shares, CalPERS nets a combined, nominal value for its investment of $509.2 million. That figure represents a cash-on-cash multiple over its initial $175 million investment of 2.9x, and an IRR of between 12 and 13 percent over CalPERS's 11-year ownership period.

CalPERS has also invested in 26 Carlyle funds since 1996, making commitments exceeding $4 billion, far more than the $175 million ownership investment in the firm.
CalPERS did monetize their Carlyle Group equity investment in 2013, grossing an additional $90 million for waiting.  Bloomberg reported:

At Monday's closing price of $29.39, a sale of CalPERS' full stake would generate $374 million in proceeds, more than two times the pension fund's 2001 investment. That return doesn't take into account the dividends CalPERS has collected from its ownership.

Carlyle likes to brag about its 30% annual return on equity from its private equity investments.  That could be one reason for CalPERS to obfuscate PEU performance information.

Industry associated researchers seem happy to only include investment winners in their samples.  No bankruptcies allowed.  Many researchers stop the analysis when the affiliate is monetized.  This ignores how debt bloated firms perform after their ejection from the PEU system.

As for the end of 2008, that's a dicey time in the financial world.  Carlyle made over $680 million in capital calls to CalPERS during the financial crisis.

Eight Apollo funds called a total of $1.71 billion from CalPERS last year. Washington, D.C.-based Carlyle Group, the world’s second-largest private-equity firm, made $681.3 million of capital calls on the pension fund in 2008. Fort Worth, Texas- based TPG, which also has piled into distressed debt, drew down $272 million, and Blackstone Group LP in New York, manager of the world’s largest buyout fund, called $143 million. 

How might this information be represented in the Oxford numbers?

Naked Capitalism closed with:

CalPERS seems to see indulging the PE industry’s mania for secrecy as more important than meeting its obligations under the law and doing what is in the best interest of its beneficiaries. 

Bingo!  Welcome to our PEU world, infected by the greed and leverage boys and their need for stories to be told their way.  That's the function of the PEU research crew, foreign and domestic. CalPERS equals PEUbiquity in a world where politicians, Red and Blue, love PEU.

Update 4-2-14:  CalPERS clarified their noncooperation with Naked Capitalism by stating "perhaps the true intent of her infatuation with CalPERS was to seek a means to gain exposure for herself, her financial advisory services firm, or her blog (where paid advertising and her own book for sale are prominently displayed)."  More evidence that CalPERS sees Naked Capitalism as their foe in our PEUbiquitous world.

Update 4-4-14:  Naked Capitalism's foe position was strengthened by a DealBook piece.  It identifies a concern that actual PEU returns could be calculated and real returns could be much less than represented. I smell another Carlyle Group puffery defense