CalPERS winner wants investment change

The winner of a runoff election for an open CalPERS board seat, J.J. Jelincic, would like to see more of the giant pension fund’s $200 billion investment portfolio managed by staff, rather than outside managers.

One of his arguments is $70 million in “placement agent” fees collected by the firm of a former CalPERS board member, Al Villalobos, for helping private equity firms obtain billions of dollars from CalPERS.

“He gave us a $70 million proof we are paying outside managers too much money,” said Jelincic. “If there are those kind of margins, then we need to squeeze them. Frankly, if we bring it in-house we don’t have to deal with those margins at all.”

Jelincic, a former president of the California State Employees Association, had a coalition that helped him defeat Cathy Hackett, who was backed by the Service Employees International Union.

Both candidates watched through a glass partition yesterday (Dec. 11) as seven employees of two firms, Intraform and Martin & Chapman, ran ballots through electronic counting machines under the eye of seven CalPERS employees.

Shortly before noon, a CalPERS official, Kim Malm, opened the door and announced the results: Jelincic 109,088 votes and Hackett 104,656. About 1.3 million active and retired CalPERS members were eligible to vote.

Counting runoff votes

Cathy Hackett watches count

J.J. Jelincic and son, J.J. III, enjoy victory

Jelincic will be an unusual member of the 13-member CalPERS board. Not only is he a current CalPERS employee, but he works in investments — an area hit by big losses in the stock market crash last year and the placement agent scandal this year.

In recent decades, said Jelincic, there may have been only one CalPERs board member who was also a CalPERS employee. But William “Scotty” Rosenberg worked in the San Francisco CalPERS office, not the headquarters in Sacramento.

Jelincic said he will talk to the CalPERS chief executive officer, Anne Stausbol, about his new role. He thinks there are at least three options: be placed on leave, split time equally between the job and the board, or go on loan to another agency.

His broad background during 23 years at CalPERS in real estate, stocks, trading, futures, bonds and corporate governance gives him the financial expertise that some reformers think should be required of all public pension board members.

But Jelincic also is a stakeholder (not recommended by the reformers) known around the Capitol from his days as president of the CSEA, a union replaced by the SEIU as the representative of the largest state worker bargaining unit.

Six of the 13 board members are elected by CalPERS members. Two members are appointed by the governor, one by legislative leaders and the others are the treasurer, controller, the personnel administration director and a personnel board designee.

Jelincic won in a seat being vacated after 25 years by Charles Valdes, who endorsed Jelincic. The Sacramento Bee reported that Valdes agreed to pay a $12,500 fine for accepting contributions from associations of Villalobos, the placement agent.

The Bee also said that Villalobos paid for an around-the-world trip for Valdes in 2006 to London, Dubai and Hong Kong. Valdes said he repaid Villalobos with a check for $23,630.

Hackett talked about the need to clean up an insider culture at CalPERS during her campaign. As union officials, Hackett and Jelincic once worked together before becoming opponents.

Hackett, vice chairwoman of an SEIU local, helped Jelincic win election as president of the CSEA in 2003. Four years later she helped defeat Jelincic when he ran for re-election.

Before Jelincic’s victory yesterday, the SEIU had backed the winner in two previous well-financed races for CalPERS board seats. Henry Jones won with 52 percent of the vote in 2007, and George Diehr won in 2006 with 51 percent.

Campaign reports on the secretary of state’s website show, through August, Hackett receiving $56,704 and Jelincic $41,724. On behalf of Jelincic, the American Federation of State, County and Municipal Employees independently spent $74,812.

While urging staff management of more CalPERS investments, Jelincic said a placement agent can be like a car salesman who makes one pitch to a typical buyer and another to a person with some expertise.

“If you go to that same salesman and say, ‘I’m looking at this car and, oh by the way, this is my brother the mechanic,’ it’s a very different sales pitch,” he said. “Well, that’s part of what’s going on at PERS.

“I don’t think board members have made bad choices, but investments are not their thing. What I have said is that we are spending way, way too much money on outside managers, period, and we need to actually bring more of it in-house.”

A bright spot in the performance of the CalPERS investment portfolio, which ranked in the bottom quarter of public pension funds during the last decade, were bonds managed mainly in-house, the Wall Street Journal reported this week.

Jelincic is skeptical of attempts by the CalPERS board to tighten controls on placement agents by adopting a disclosure policy last June and currently drafting legislation to require agents to register as lobbyists.

He cautioned against acting in “panic mode.“ The original disclosure policy needed correction, he said, and having placement agents register as lobbyists will limit “wining and dining” but likely be “immaterial” in changing the way business is done.

“What the board needs to do is figure out what it is it’s trying to do and then write a regulation to do that,” he said. “My belief is what they are trying to do is make the Sacramento Bee happy, and they are not going to do that.”

The Bee and others reported this week that CalPERS’ real estate holdings lost 49 percent of their value during the year ending last June 30, according to a consultant, and several unidentified managers have been or will be terminated.

McFarland Partners left after a $1 billion loss on the bankrupt LandSource residential project near Los Angeles. The relationship with BlackRock reportedly is being reviewed after a potential $500 million loss on a New York apartment complex.

Jelincic, who works in the CalPERS real estate unit, said some of the dramatic 49 percent drop in real estate value is the result of a decision to do a comprehensive single reappraisal, rather than revalue part of the holdings each quarter.

“You are already beginning to see a bottom,” he said. “So the stuff we appraised nine months earlier and took a hit on, quite frankly if we had hung on for nine months we might not have taken the hit. But it was really, ‘Clear the deck. Let’s get real about what we are dealing with.’”

Reporter Ed Mendel covered the Capitol in Sacramento for nearly three decades, most recently for the San Diego Union-Tribune. More stories are at https://calpensions.com/ Posted 12 Dec 09

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6 Responses to “CalPERS winner wants investment change”

  1. md Says:

    Why not just eliminate all positions that “manage investment portfolios” and just use index funds and save a whole bunch of money? Investment managers can’t beat the index over the long term.

    Hire a consultant to develop an investment allocation. like 75% in the VTI (total market index), 25% in the BND (total bond market index), re-balance once a year, and ignore all this stock picking madness.

  2. mrek Says:

    Assuming PERS has or can easily develop investment smarts in-house (and if their bond people could do the job why not others?), it makes sense to cut back the expensive outside “help” that’s interested mainly in making the next payment on the yacht or the corporate jet. “Private Equity” seems to be mainly in that category.

    Index funds are not all they’re cracked up to be. They just follow the market and ALWAYS yield less than just owning the stocks (regardless of how small there’s a cost). When the market tanks so do the index funds (witness my .401K). There’s a place for more active management especially with stocks where strange things happen; stock prices rarely represent the actual value of the company. But you don’t necessarily get better management by paying more.

    FWIW, my actively unmanaged stock account has done much better recently than either my 401K (mostly indexes) or mutual funds (actively managed but at a much lower level than most), but the mutual fund has done better since the market started to recover a bit. Horses for courses…

  3. James McRitchie Says:

    Jelincic is right. CalPERS needs to write regulations on placement agents, not “policies” aimed at pleasing the Sacramento Bee. See my comments in support of a request for determination to the Office of Administrative Law on the CalPERS policies.

    http://www.corpgov.net/news/2009/dec/bishopOALdetermination/OALdetermination2009Bishop.doc

    For the initial filing by Keith Bishop, see California Regulatory Notice Register, 12/11/09, p. 2143 at http://www.oal.ca.gov/res/docs/pdf/notice/50z-2009.pdf

  4. Charles H. Parks Says:

    Congratulations Mr. Jelincic.

  5. Bill Snow Says:

    I, personally, voted for Mr. Jelincic, based on his background. Looks to me like I made the right choice. It may be an anti-bias of mine but I am extremely wary of anything or anybody represented by S.E.I.U.

  6. Aleida Dadlani Says:

    i am and so set for just a trip vacation. why don’t you consider an individual?

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