CalPERS Cuts Ties with PCG

The California Public Employees’ Retirement System announced last month that it is dissolving its connections to long-time private equity adviser Pacific Corporate Group (PCG).

CalPERS, the nation’s largest pension fund, did not explain why it was severing ties with its former adviser. But questions about the relationship arose in the wake of a pay-to-play scandal involving the New York State Common Retirement Fund that began last year.

Specifically, concerns surfaced regarding PCG’s relationship with Alfred Villalobos, a former CalPERS board member who became a placement agent. A civil complaint filed in May by California Attorney General Edmund G. “Jerry” Brown Jr., a gubernatorial candidate, allegea that Villalobos and Federico Buenrostro Jr., a former CalPERS CEO, attempted to bribe CalPERS officials into making investments from 2002 to 2008.

“We’re not commenting beyond what’s in our press release,” a CalPERS spokesperson said of the decision to no longer work with PCG. A PCG spokesperson stated, “Pacific Corporate Group has had the successful opportunity to serve CalPERS as a fiduciary for over 20 years and has generated a net IRR in excess of 23% while producing over $3 billion in investment gains to enhance the retirement security of CalPERS beneficiaries.”

A previous joint venture partner with PCG, Aviva Capital, will run the more than $1 billion of investments and commitments in two emerging markets funds, known as Global Opportunities Fund 1 and 2. Capital Dynamics will take over the management of the $480 million Clean Energy & Technology Fund, formerly run by PCG, which was started in 2007.

CalPERS will maintain an association with a part of the team once known as PCG Corporate Partners, which was headed by managing directors Timothy Kelleher and Douglas Meltzer and ran private equity funds for PCG. The strategy involved making significant, non-controlling investments, typically to finance business expansion. The new spin-out group, KMCP Advisors, presumably run by Kelleher and Meltzer, will manage what remains in the two Corporate Partner funds.

PCG had been an adviser to the CalPERS private equity program since its formation in 1990. —Nancy Gordon