Hypocritical pension funds lecture others - Pacific Research Institute

Hypocritical pension funds lecture others

The nation’s two largest pension funds, the California Public Employees’ Retirement System and the California State Teachers’ Retirement System, have been plagued by myriad fiscal problems, and even a corruption scandal in the case of CalPERS, and yet these systems continue to lecture the private sector on ethical corporate governance. The latest hypocrisy, released last week, is a project funded by the two systems to promote “diversity” in board rooms.

The two funds launched something called the Diverse Director DataSource, which is designed to help companies find “untapped talent to serve on corporate boards,” according to a statement from the pension funds. It’s meant to be voluntary, but make no mistake about the political and investment muscle these two funds wield. As the Wall Street Journal reported, many Wall Street sources believe this really is a mechanism by which the investment funds can select board members and exert more political control over corporations.

“This is a milestone in the development of 3D,” Anne Simpson, CalPERS senior portfolio manager, said in a statement. “3D is an innovative resource that opens the door to finding candidates whose fresh ideas and new perspectives can help companies generate lasting, sustainable value and provide a check against the kind of ‘group think’ that played a significant role in the financial crisis.”

CalPERS and CalSTRS are masters of group think themselves, and these organizations have been front and center in some of the dubious investments at the heart of the financial scandal. CalPERS officials made some wacky investment bets — i.e., home-building projects using borrowed funds at the height of the housing bubble — and CalSTRS officials “rolled the dice” on risky investments to make up for a growing shortfall and ended up with an even bigger problem, according to published reports.

This is about two public-sector organizations using their immense financial clout to meddle in the governance structure of this nation’s private sector.

For fun, I looked at the board of directors of CalPERS and CalSTRS on their websites. These organizations don’t live up to the standards they are foisting on everyone else. By their own standards (ethnic and diverse viewpoints), these boards are not diverse and are dominated by public-employee group think.

Hypocrisy is nothing new when it comes to these funds. Both pension funds are awash in unfunded liabilities — the massive taxpayer-backed debt, estimated at a half-trillion dollars in California alone, that is quashing public budgets and imposing burdens on future generations.

The pension funds used their political clout over the years to hide the problems while pointing fingers at corporations.

Their own investment decisions have oftentimes been troubling. This is from Bloomberg’s news service: “CalPERS made a series of disastrous bets on real estate after letting its internal risk controls break down and ceding too much control to outside investment advisers during the housing bubble. … On top of the fiscal mess, CalPERS is also caught up in a corruption scandal involving middlemen who help money managers win investing assignments from pension funds.”

CalSTRS has debt issues but hasn’t faced the same ethical scandals as CalPERS. Nevertheless, as the corruption scandal unfolded at CalPERS, the entire CalSTRS investment staff sent a letter of support to their colleagues at CalPERS. So we see that CalPERS and CalSTRS are indeed diverse organizations — groups with diverse views about basic ethical and management issues.

The real scandal is that these pension funds are backed by taxpayers, who will pick up the pieces for such greed and political correctness.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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