Earlier this morning Joe Weisenthal wrote skeptically of the new CALPERS chief Joe Dear’s plan to start getting ahead of its 60 billion (!!) dollar loss this year by…trying to beat the market with investments in private equity firms, hedge funds, real estate, commodities and other such “alternative” investments.
It’s hard to overstate how ludicrous this plan seems, especially in light of the recent pay-to-play pension-fund scandals.
In case you haven’t been paying attention…
Dozens of guys like Joe Dear across the country have been arrested and/or sued this year as a result of the dubious “alternative” investments of public pension funds like CALPERS in a scandal that has among other things curtailed the political ambitions of New Mexico Gov. Bill Richardson and Obama “car czar” Steve Rattner.
It is not hard to see why public pension funds like CALPERS — and CALPERS has traditionally been one of the worst offenders — are fertile ground for kickbacks and corruption: they put incomprehensibly vast sums under the management of political appointees who earn a yearly salary that would barely cover the dermatologist bills of the Wall Street advisers they have to talk to all day.
In the past, strict investment guidelines limited the potential for graft in this business, but at some point in the nineties “alternative” investments came into vogue, benchmarks and regulations and disclosure gave way, and by the turn of the millennium millions of teachers, firefighters, bus drivers and cops had earned the dubious achievement of playing the “greatest fool” in every major American asset bubble.
That the lifestyles of political hacks and the profit margins of funds-of-funds-of-funds and investment banks would be subsidized by the retirement savings of what remains of the nation’s middle class came to be such an accepted reality that a Bear Stearns managing director openly bragged in 2007 about how public pension funds had become go-to dumping grounds for the unrated “equity tranches” of their crappiest synthetic subprime CDO-squareds.
It was such an accepted reality that by-all-accounts image-conscious men like Steve Rattner got so far into the scandal that he tried to hire Hank Morris, the man behind the rigging of the New York state pension fund, to work at his hedge fund. And it is still apparently such a generally accepted reality that a guy like Joe Dear has tilted his way to a big promotion. The NYT:
He was hired in large part for his management skills and political savvy — honed in Washington, where headed the Occupational Safety and Health Administration in the Clinton years. He does not have an M.B.A. or any other advanced degree in finance. Harvard, Yale or Wharton is not on his résumé. Instead, his lone degree, in political economy, is from Evergreen State College in Olympia, Wash. Most recently, Mr. Dear headed the Washington State public pension fund, which gained a reputation as a daring investor under his oversight. It risked more of its portfolio — 25 per cent — on private equity than any other public fund. The bet pushed the Washington State Investment Board, which now has $67 billion in assets, into the top 1 per cent of its peer group in performance during the boom years, according to Wilshire Associates. But in the fiscal year that ended last month, the fund lost 27 per cent of its value, or $18 billion.
Just what this business needs: a politically-savvy veteran of the Clinton Administration!
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