WSJ : the "latest" from those idiots at Calpers -- Calpers Sells Stock Amid Rout to Raise Cash for Obligations ..........
OCTOBER 25, 2008
Calpers Sells Stock Amid Rout to Raise Cash for Obligations
By CRAIG KARMIN and JOANN S. LUBLIN
The nation's largest public pension fund, known as Calpers, is unloading stocks in a falling market to make sure it has enough cash to meet its obligations.
The pressures come as the California Public Employees' Retirement System has had to raise cash to fulfill commitments to private-equity firms and real-estate partners. The giant fund's predicament is another sign of how the market selloff is tightening the screws on pension funds nationwide. Many other pension funds have similar partnerships and could also confront liquidity strains.
Members of the board investment committee at Calpers held a closed-door session on Monday and discussed ways to raise more cash, according to people familiar with the matter. The issue was brought to the attention of the committee after members of the investment staff expressed concern, a person with knowledge of the matter said.
Typically, Calpers keeps less than 2% of its assets in cash, but the recent demands have forced it to raise that level.
"Calpers receives more than enough cash from employers and members to cover its monthly benefit obligations" to retirees and other beneficiaries, a Calpers spokeswoman said Friday.
Under normal conditions, pension funds count on some private-equity partners to distribute investment gains, while pensions owe some partners more capital. During the recent market selloff, however, distributions have dried up while capital calls continue. That's created a mismatch and a cash strain.
Since the credit markets have tightened up and real estate and alternative investments aren't very liquid, Calpers has been compelled to sell off stocks to raise large sums quickly. Those sales are turning paper losses into realized losses.
Calpers said it had $188.8 billion under management as of Wednesday, down 21% from the end of June. The fund, which said it had about 63% of its assets in global stocks at the end of August, has been punished severely by the stock-market selloff.
Critics say that some of Calpers's troubles are of its own making. The pension fund is the main investor in a partnership that is expected to lose much of its nearly $1 billion investment in LandSource, a venture that owns thousands of acres of undeveloped residential land north of downtown Los Angeles and that filed for bankruptcy protection in June.
The pension fund also has been without two of its top leaders, the chief executive officer and chief investment officer, since they resigned at midyear. The fund has been operating with interim people in those key positions.
Calpers initially tried to fill the CIO spot first, but without any luck. A former fund official said that candidates were reluctant to take the job while the permanent CEO position remained vacant. Calpers is now focusing on landing a CEO first, recently hired a search firm and hopes to have its new leader in place by December, people familiar with the matter say. The fund intends to have a CIO by no later than February.
Anne Stausboll, a politically well-connected attorney and the former California chief deputy treasurer, is serving as interim CIO. She appears to be the only top Calpers official vying for the CEO job, according to people familiar with the situation. She doesn't have the investment experience that is common for a CIO of a large fund, which critics say puts Calpers at a further disadvantage during this particularly severe market crisis.
"Calpers's investment office is being capably managed by our interim CIO and her team of seasoned investment professionals," the spokeswoman said.
Calpers counts 1.6 million former and current public employees as members whose benefits are contractually guaranteed. If the fund suffers large investment losses, it has little choice but to hit up employers -- such as cities and counties -- to increase their contributions. Calpers recently indicated plans to raise the contribution level starting in 2010 and 2011, unless the recent investment losses can be reversed. The fund estimates that employers would have to pay an additional 2% to 4% of their payroll to Calpers if the June fiscal year ends with returns of negative 20%, which the fund recently hit.
Write to Craig Karmin at craig.karmin@wsj.com and Joann S. Lublin at joann.lublin@wsj.com
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