CalPERS ‘closes chapter’ on bribery scandal

The $294bn US pension fund has introduced a number of controls designed to prevent another scandal like ‘Pay-to-Play’.

The California Public Employees’ Retirement System (CalPERS) has said it had taken “meaningful steps to strengthen accountability and transparency” at the pension fund, in the wake of the Pay-to-Play scandal that erupted in 2009.

The saga culminated this week in the sentencing of its former chief executive officer Federico Buenrostro on federal bribery charges. Buenrostro, who was CEO from 2002-08, pleaded guilty to fraud and bribery charges in 2014 and was sentenced to four-and-a-half years in prison by a San Francisco court on Tuesday.

Buenrostro’s successor, Anne Stausboll, who took over as chief executive in 2009 and is credited with instituting a number of reforms at CalPERS, said: “This chapter in our history is now behind us, and CalPERS has emerged a stronger, more dynamic organisation.”

In a scandal that rocked the industry, Buenrostro accepted more than $200,000 in bribes, including travel and gifts, in return for encouraging staff to make investment decisions in favour of former CalPERS board member and placement agent Alfred Villalobos.

The scandal prompted an investigation of the use of placement agents by the pension fund.

Among measures introduced since 2009, CalPERS now requires external money managers to disclose whether they are using agents and the fee; it is co-sponsoring new legislation that would require placement agents to register as lobbyists; and it has imposed limits on gifts to board members and certain staff, it said.

The $294 billion fund, the largest US public pension, also hired its first chief financial officer, appointed a formal federal prosecutor as general counsel and increased the number of audits of public agencies. “This saga has now come to an end. We are stewards of a sacred trust, and it must never be compromised for personal gain,” CalPERS board of administration president Rob Feckner said.

CalPERS has also been criticised for lack of transparency regarding its $27.1 billion private equity portfolio, specifically its ability to track what it paid to managers in the form of carried interest.

CalPERS responded in November, revealing that it had paid $3.4 billion in carried interest since the launch of its private equity programme in 1990. It has also launched the Private Equity Accounting and Reporting Solution system, which will report carried interest payments. In January, the pension fund endorsed the use of the Institutional Limited Partners Association fee reporting template, which, with other LPs, it helped shape.