Sunday, May 3, 2015

CalPERS Doesn't Know about Twelve Year PEU Investment

NYT reported:

J. J. Jelincic, a member of the California Public Employees’ Retirement System board since 2010, has often raised the problem of fee transparency in the fund’s private equity investments. Mr. Jelincic, who before joining the board was on the Calpers staff for 24 years, said in an interview that being in the dark on fees created problems for the overseers of the $300 billion pension fund.

“You don’t think to negotiate on fees that you’re not aware you’re being charged,” he said. “As a trustee I’m really concerned about not knowing what we’re paying on private equity. We may be getting a really good deal, we may be getting a really bad deal. I just don’t know.”
 This doesn't ring true for CalPERS investment in one private equity underwriter (PEU).  

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. 
As a part owner of Carlyle one would expect CalPERS to clearly understand their investment, it's revenue streams and expense makeup.  I don't believe for one minute that CalPERS didn't understand how Carlyle made money, fees, charges, etc.  I'm sure they had to sign some super secret deal that they would never reveal the golden PEU fee goose hidden in the basement of 1001 Pennsylvania Avenue.  

Another reason CalPERS should understand Carlyle's fees for add-on nose hair trimming and blackhead removal is below:

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 (CalPERS) in 2008. 
CalPERS saved Carlyle's backside in the financial meltdown, in addition to holding an ownership stake in The Carlyle Group for twelve years, finally exiting in 2013.  

I don't believe this putz saying he doesn't understand how private equity makes its money.  He was a trustee for four years of CalPERS ownership stake in Carlyle and an employee prior to that.  Flash back to 2010 the same year this yahoo joined CalPERS board:  Themes for a meeting between Carlyle, KKR, TPG, Avenue Capital and CalPERS included:

calls for a cap on fees, more disclosure and greater investor control for clients of private equity firms.
Five years ago the parties discussed resolving the issue of fee transparency and it still exists. This disturbing heel dragging is compounded by what CalPERS should have known as an owner of Carlyle.

If CalPERS did not understand their 5.5% investment in Carlyle for over a dozen years our public retirement system is incompetent and as morally bankrupt as the PEU greed and leverage boys.

Update 9-8-15:   CalPERS staff spouted General Partner frames when questioned about PEU investments.  It's likely a hangover from CalPERS twelve year PEU binge as a 5.5% Carlyle Group owner.
Update 5-5-22:  The PEU "public pension savior" narrative may burst if one New York Assemblyman gets his wish for PEUs to reveal their contracts and fee arrangements with New York's public pension funds.