Clout, Conflicts and Controversies: Everything about CalPERS is BIG

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Confrontation a Must

At the center of much of the controversy is CalPERS’ chief investment officer, Mark Anson, who has responsibility for all pension-fund assets.  He oversees 58 independent money management firms and an internal staff of 150, including 90 analysts and portfolio managers.            

     Anson argues with the quiet, precise passion of an attorney — he is one, and a chartered financial analyst and a certified public accountant, as well — that CalPERS simply must confront corporate America  if it’s “going to maximize value for our beneficiaries.”             

     The problem is threefold, according to Anson.            

     First, to meet its pension obligations, CalPERS must invest mainly in stocks (which currently account for about $110 billion of its portfolio; fixed-income securities amount to $46 billion and real estate to $10 billion).  There’s no way CalPERS could invest that much money only in companies that already meet its standards for good governance.             

     Second, CalPERS invests about $50 billion, more or less on a permanent basis, in an internally managed index fund benchmarked to the Wilshire 2500.  Thus, to a large degree, the performance of the market as a whole determines the performance of CalPERS’ stock portfolio (which tends to be quite good, although considering the large amount of money in its index fund, not spectacular).            

     The third reason is especially indicative of CalPERS’ investment philosophy and shows why CalPERS is a lightning rod for criticism.  Anson believes someone has to fight for good corporate governance; someone has to look out for the rights of investors; and that someone is CalPERS.            

     Take one of Anson’s high-priority causes: the independence of outside auditors.  So strongly does CalPERS believe in this principle that it has automatically withheld its vote from any corporate director who has voted to retain an auditing firm that also performs nonauditing work.             

     Anson points to the debacles at Adelphia, Enron, Tyco and WorldCom to justify this position.  Each company used its auditing firm to provide nonaudit services.  Anson says that lucrative consulting assignments unavoidably compromise the independence of auditors.  “If they are no longer issuing an independent opinion, how can we, as an investor, trust that opinion?” he asks.  “We can’t.”            

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