I hope readers don’t think I’m turning Naked Capitalism into “all CalPERS, all the time”. However, it was only yesterday that I learned of a press release that the California Public Employees’ Retirement Systems issued last Friday about our suit against the giant public pension fund. And as you’ll see, this document begged for a response.
By way of background, last September, we filed a Public Records Act request (California’s version of FOIA) for private equity return data that CalPERS had not previously published. While CalPERS has published quarterly data on a fund-by-fund basis since settling an earlier Public Records Act case in 2002, three researchers at Oxford published a paper in 2013 which discussed specifically and in detail how they were the first to obtain the entire history of CalPERS’ investing in private equity, back to its first participation in the strategy in 1990. They stated that they got previously non-public data back to 1990. In addition, the paper indicated that the scholars obtained cash flow information on the timing of capital contributions (when the private equity funds asked them to send money) and distributions (when the private equity funds returned money, most often via the sale of companies). For more background, see this post.
Note that in California, once an agency has given out a record to one member of the public, it has forever waived the right to claim any exemption from disclosing the records to others. So it seemed that our PRA request should be straightforward. Silly us.
You can find the blow-by-blow of CalPERS’ inconsistent actions and disconnect between its statements (that it was cooperating) and its actions (delivering records that fell well short of what we’d asked for) here and here.
The latest development is their press release, which is revealing, and not at all in a good way. Let’s start with the fact that it is highly unusual for a large organization to respond to a lone critic, particularly an entity like CalPERS, which does not face the pressure of adverse stock price movements or analyst follow-through. In other words, this is a remarkably defensive response to a small-potatoes lawsuit.
Second is that if the point is to reach the public, this press release appears to be ineffective. I now have a number of former CalPERS employees who are interested in the issues I’ve raised and are part of various relevant social networking groups as correspondents. I heard about the press release only today from one particularly vigilant CalPERS watcher. So from what I can tell, CalPERS’ missive is not making the rounds.
But the big surprise is how inept it is and how many falsehoods it contains. This is looks to be a classic case of an organization trying to believe its own PR, except in this case the PR is pretty poor.
Let’s start with the top, where it tries taking the tone of a mildly vexed adult lecturing to children (implicitly yours truly and CalPERS beneficiaries):
Chris Witkowsky with PEHub is right when he mentions in his latest article that the entire issue with blogger Susan Webber regarding her request of CalPERS Private Equity data could have been resolved without bringing in the lawyers. CalPERS was in the process of gathering the data she wanted, and working in good faith, when she hired her own lawyer and filed suit against CalPERS, escalating the situation.
In fact, all you need to do is look at a timeline to see what a remarkable misrepresentation this is.1. I filed my request September 29 which CalPERS claims they never got (!) and recreated in mid-October.
On December 18, they said they would be delivering the records in ten days. When nothing arrived, I kept calling and e-mailing as instructed, but got no reply. Since when is going silent for weeks “cooperating”?
I got my attorney, Timothy Y. Fong, to contact them at the end of January and only then did we find out they had sent a letter dated January 27 that they had no responsive records and the matter was closed.
Now understand, that early on, they and not we set the pattern of being uncooperative and responding to our inquiries only when prodded by my attorney.
2. Fong wrote a letter strenuously objecting to their decision. CalPERS reopened the matter. Now pray tell, dear readers, do you seriously think that if I had written a letter in my own name making the same strenuous objections that they would have relented?
3. CalPERS asked what we wanted and we sent a letter detailing what the academics had gotten, and also askied that they also bring the records up to date. In other words, since they told us they wanted to cooperate, we tacked on an additional request that we felt we could obtain via a separate PRA request (in the spirit of getting this done and us out of their hair).
On February 12 CalPERS a letter that cherry picked our request and a CD which they said were the responsive records and again said the matter was closed. The CD contained ONLY 2012-2013 records, which were extras we had asked for (this did, by the way, include detailed cash flow information of the sort we had hoped to receive for earlier time periods). We still had not gotten any of the records the academics had gotten. And mind you, this is old data which could not possibly make anyone now at CalPERS look bad. Why all the resistance?
4. The only appeals process to a denial of a request (aside from having a lawyer write a nastygram, which was you can see we tried and had failed) is suing, so that’s what we did.
5. After we sued, CalPERS again told us they wanted to cooperate. They also reversed themselves. Before, they insisted they had not given any records to the academics (which amounts to calling them frauds). Now they said they had interviewed a former manager and knew what records had been sent. They claimed the document was a 226 page PDF. (Notice that while CalPERS believes that to be what was provided to the academics, remember that CalPERS has also implemented a very aggressive e-mail deletion policy. Based on their communication with us, our understanding is that they identified or more likely recompiled this record based on the 4.5 year old memories of a former employee; they’ve not mentioned any other basis for believing that this document is indeed what was given to the academics. Moreover, if the ex-employee gave the academics even more than he perhaps should have, he’d have an incentive to be sparing with the truth).
As we told them, that was not an acceptable record. The law stipulates that records must be sent in the form they were kept. CalPERS clearly does not keep records in PDF form; they would generate a PDF from underlying data in a database. CalPERS also sent some Excel files, which are proper responses, but as we’ve written, the information in them falls far short of what they were required to provide.
So in short, CalPERS “cooperated” each time only as a result of having my lawyer turn up the heat.
Let’s briefly review the rest of the issues.
CalPERS says that the provided us with “the” PDF, which they also published on the site. First, as we’ve discussed, that is not a proper response under the PRA. We also harbor doubts as to whether that is the same document the Oxford academics received. CalPERS complains that we’ve lodged additional PRAs, but fail to mention that some are in the interest in verifying the accuracy of CalPERS’ claims, given their history of false statements to us and incomplete investigation. Moreover, CalPERS also omits that some of the PRAs are on entirely new matters (readers may recall our discussion of a PRA response from Los Angeles public pension fund LACERA; CalPERS isn’t the only place where we are looking for information).
They also tried to rebut some remarks we made about errors in the data that they sent, that three funds that were not PE funds were included in files that were meant to be exclusive to PE. CalPERS waves that off and says that they are in their PE database on their website, so they, not we, are right. This is both untrue and misleading. One of the funds at issue was from the early 1990s, and hence not among the 2002 and later funds. The fact that the other two, which are “realty” funds, are listed, does not prove that their inclusion in proper. The industry database Preqin does not include those two funds in its comprehensive list of all CalPERS private equity funds, nor does it include the early 1990s fund by Relational, an activist investor in liquid stocks (hence a hedge fund, not a private equity fund). This shows that an outside expert agrees with our contention that these three funds are misclassified and raises doubts about CalPERS’ recordkeeping.
CalPERS refers to another bone of contention, as to whether the academics received additional information, as in actual cash flow details (precisely what funds were paid out and received). Right now, analysts can extrapolate quarterly changes, but that is approximate. We have repeatedly pointed out where in the Oxford paper the academics say they received more. Yet despite pointing to the actual language of the paper, with page references, CalPERS has seemed unwilling to take it on face value.
The next paragraph is a PR 101 bomb:Next, and perhaps most suspect, is that in none of her blogging since the time of the initial request has she made much actual use of the data. Instead, she’s used the situation as a reason to obsess over CalPERS in her sensational, erroneous and conspiratorial-themed blog postings about usSo get a load of what happened: CalPERS descends to name-calling, which is generally a sign of desperation, yet also linked to a full set of our posts! In other words, they’ve made it trivial for anyone who wants to see how “sensational” our posts are to have a look, where they will find that we’ve explained all of our issues and charges in considerable detail and provided supporting evidence.
Then CalPERS launches into an attack on journalism:
This leaves one to speculate that perhaps the true intent of her infatuation with CalPERS was to seek a means to gain exposure for herself, her financial advisory services firm, or her blog (where paid advertising and her own book for sale are prominently displayed).
Let me begin by telling you that I once published my comments on Naked Capitalism and appreciated the exposure Yves gave me. But I moved over to Zero Hedge when she started editing my comments without my permission (wrote about it here). Apparently, she has every right to ramble on endlessly in her comments but I had to cut mine short. I was booted off Zero Hedge because the moronic trader wannabes on that site could dish it out but they couldn't take my attacks (Tyler Durden, or as I affectionately call him Turden, remains the biggest self-promoting douche in the blogosphere). Both Naked Capitalism and Zero Hedge removed my blog from their blog roll but I kept theirs on my blog roll (because I am more mature and want people to make up their own mind).
Had CalPERS bothered to investigate us, they’d know we have an established reputation, have a strong following among financial regulators and on the Hill, and have taken on bigger targets than them, starting the mortgage-industrial complex. And if they had done that homework, they’d also know that industry defenders then tried to depict us as overreaching and exaggerating, when as events panned out, we consistently underestimated the depth and extend of abuses.
Suing CalPERS is hardly beneficial to this blog; if CalPERS had again bothered to check, the average number of comments on CalPERS’ posts is lower than for our normal posts, in fact indicating that our readership doesn’t see our efforts to pin down CalPERS as a wildly exciting topic. But that idea must be inconceivable in Sacramento.
Finally, notice the attack on journalism: the fact that I run advertising is depicted as suspect. So CalPERS is insinuating that every major news outlet is corrupt because it operates on a commercial basis.
And the signoff is more of the same:All of that aside, CalPERS has been closely working with Webber’s legal representative throughout this process and will continue to do so. Furthermore, as always, we stand ready to release any information which can be disclosed under the California Public Records Act.As a matter of fact, CalPERS is no longer working with my lawyer; they’ve brought in outside counsel. His first call to my attorney was hostile and he has failed to respond to our having told him that the records (the Excel spreadsheets, which are the only records that count) are well short of what was clearly the basis for the paper. It’s been two weeks and we’ve heard not a peep on that issue. If that’s what they think “closely working with” looks like, then maybe that’s why we’ve gotten nowhere. They have an idiosyncratic notion of what cooperation looks like.
And as for “standing ready” that contention is belied by the fact that we didn’t get the records as we were promised the first time, at the end of December.
I’ll leave it to readers to speculate why CalPERS has decided to turn what ought to be a molehill into a mountain. But they seem not to recognize that this fight is a tar baby for them, and they’d be wise to extricate themselves rather than punching their way into more trouble.
It's funny that Yves Smith, aka Susan Webber of Aurora Advisors, is demanding transparency from CalPERS because I challenged her and Tyler Durden to fess up as to who is funding their respective blogs. In particular, is George Soros, a client of hers, funding Naked Capitalism and are Eric Sprott, Kyle Bass and a bunch of other short-selling gold bug hedgies funding Zero Hedge? I'd be more than happy to tell them who is contributing to my blog but it's fair to say that LTK Capital Management is by far the primary contributor to my efforts (although Tatiana and Svetlana of MCM Capital Management throw me a bone once in a while, lol!).
Having said this,I don't understand why CalPERS won't just shut up and comply with her FOIA request. If they provided the data for these Oxford academics, they should provide it for anyone else requesting it. In fact, I think CalPERS and every other public pension fund should provide detailed quarterly cash flows in Excel files on their website for every single private market fund investment they farm out to managers or do directly in-house (with an appropriate lag).
Wake up folks, we live in an era of mistrust. I just finished writing about whether the U.S. stock market is rigged and followed up with a comment on the great HFT debate. CalPERS which is suppose to be a leader on corporate governance, should lead by example and implement radical transparency on all its private equity and real estate investments, especially after it lost multi billions in these investments following the crisis. I have three words for all you public pension fund honchos regularly reading my blog: Transparency, transparency, transparency.
I know all the bullshit arguments public pension funds will throw my way. "Leo, top-decile PE funds and hedge funds want to guard their secrecy. We can't be too transparent or else we won't be able to invest with the top funds." My reply is "fuck 'em" and I'm dead serious about this just like I was dead serious when I wrote the ILPA should use its clout to significantly lower hedge fund and private equity fund fees.
CalPERS private equity is a huge mess. They are revamping their PE portfolio and striking fear into PE firms but they have a lot more work ahead to clean up the mess they inherited. In other words, I think CalPERS has more serious issues to deal with than Susan Webber and Naked Capitalism.
Below, Ron Suskind, author of "Life, Animated,"shares his personal story about his family's struggles with his son's autism, and reveals some startling facts from a Centers for Disease Control study that shows autism is on the rise. One in 42 boys are diagnosed with autism, reveals Suskind. Today is Autism Awareness Day so take the time to listen and contribute to the National Autism Organization or any charity that helps families raising kids with autism.