Calpers battles former board member over real estate investment values

Calpers has refused to reveal details about valuations for real estate investments that have soured, according to a former board member who has questioned the worth of private assets held by the US public pension.

The $393bn California Public Employees’ Retirement System told its board of administration, which oversees the pension fund, in November that some older investments in non-core real estate and forestland had contributed to the underperformance of its real assets portfolio. 

Calpers is due to hold a closed session on Monday at which private assets are scheduled for discussion but no disclosures are expected following the meeting. 

Joseph Jelincic, a former investment officer and board member between 2010 and 2018, told the Financial Times that he believed Calpers did not want to reveal information about its private assets to avoid bonus cuts to its staff.

Mr Jelincic, a former president of the California State Employees Association, a labour trade union group, has challenged Calpers on numerous occasions over the fees it pays to Wall Street managers, resulting in a history of disputes with the pension fund. 

Another person familiar with the situation said Calpers’ refusal to disclose more information was “highly problematic” because it made understanding the nature and scale of the problem impossible.

A former adviser to Calpers, who asked not to be named, said price estimates for private assets relied on assumptions based on historic trends. “All the public pension funds use assumptions that smooth valuations for private assets. It is an art, not a science.”    

The adviser noted that valuations for private assets were checked by compliance and audit staff. “It seems unlikely that one team would be willing to hide the facts for the benefit of another,” he said. 

Mr Jelincic initially wrote to Calpers asking it to disclose any records that either showed or warned that the market valuation for a private asset might be lower than its reported value. Calpers refused, saying California law exempts a public pension fund from the requirement to disclose records pertaining to private assets.

Mr Jelincic repeated his request in a second letter and was again rebuffed by Warren Astleford, Calpers’ assistant chief counsel. Mr Astleford said Calpers’ ability to invest in private assets would be “substantially compromised” if it broke confidentiality agreements with its external managers.

Mr Jelincic then wrote a third letter, arguing that Calpers was failing its duty to members by continuing to pay fees to external managers when the accurate value of the assets was unclear. 

Calpers declined to comment to the FT. 

Mr Jelincic was defeated last year in an election for a seat on the Calpers board of administration and then filed a formal protest in which he alleged that California state officials sought to influence the vote by publicising a judge’s finding in 2011 that he had sexually harassed three women while he was employed by the pension fund. Mr Jelincic has since withdrawn his protest about the election.