Dale Kasler reports in Sunday’s Sacramento Bee that CalPERS is “rethinking” its ties to Pacific Corporate Group of La Jolla, which screened private equity deals for the pension fund for the past 20 years.
For 20 years, when CalPERS needed advice on a big investment, it often called on Christopher Bower, founder and chief executive of a firm called Pacific Corporate Group.
Now this confidant from La Jolla might get pulled into the bribery scandal at the nation’s largest public pension fund.
Alfred Villalobos, the man at the heart of the scandal, worked on deals for Bower. And when CalPERS was thinking of firing Bower’s firm in early 2007, Villalobos – a former CalPERS board member – stepped in and negotiated a delicate agreement that saved the relationship.
Months later, Pacific Corporate advised CalPERS on two investments that earned Villalobos fees totaling $17 million.
Bower never hid his relationship with Villalobos. He sent CalPERS a letter about it before the investments with Villalobos’ clients were made. CalPERS concluded the arrangement was fine.
As of June 30, the firm no longer screens deals for CalPERS, ending a role it filled since 1990.
“Their contract expired and it was allowed to lapse,” said CalPERS spokesman Brad Pacheco.
Bower’s firm still directly manages about $1 billion of CalPERS’ money. But that’s being examined, too, as part of a larger review of CalPERS’ investment partners, said Joseph Dear, chief investment officer at the California Public Employees’ Retirement System.
Some background: California Attorney General Jerry Brown’s office in May sued former CalPERS CEO Federico Buenrostro Jr and placement agent and former Calpers board member Alfred Villalobos with fraudulent broker-dealer activities involving $4.8 billion in investments at the fund. (Read the lawsuit here.)
According to the lawsuit, Villalobos earned $47 million in commissions from clients including Black’s Apollo Management and Parsky’s Aurora Capital through corrupt relationships with individuals including CalPERS senior investment official Leon Shahinian, who recently left the pension:
When Villalobos was trying to persuade CalPERS to purchase a 10 percent equity interest in Apollo Global Management for $700 million in 2007 (as alleged in paragraphs 36-37 above), Shahinian accepted Villalobos’ invitation to travel by private jet to New York City to attend a fund-raising event on the evening of May 14, 2007 hosted by the Museum of Modern Art in honor of Leon Black (the “MOMA Event”), the founder and controlling shareholder of Apollo Global Management.
The trip include a private jet trip flight, a stay at the Mandarin Oriental Hotel and limousine service. Total cost: more than $63,000.
One month later, at a closed door hearing of the CalPERS investment board, Shahanian recommended the board invest in Black’s fund.
Also at the meeting, Pacific Corporate Group’s Chris Bower admits at the meeting that he had a business relationship with Villalobos, but CalPERS general counsel Peter Mixon said the relationship didn’t pose a conflict of interest because PCG didn’t stand to benefit from the pension’s investment in Apollo.
Finally, Leon Shahinian’s deposition, in which he denies being bribed, is here.
Shahinian said that sometime in 2006 he told Leon Black that he would like to have a “more direct” relationship with Apollo, meaning that if Apollo had investment opportunities they should show them to CalPERS directly.
Q. After you had this conversation with Leon Black, were you discussing with him a potential opportunity for CalPERS to invest in Apollo regarding a distressed market debt opportunity?
Q. And did you — were you hoping during that conversation, in exploring that investment opportunity, to deal directly with Apollo without need for a placement agent?
A. I had approached Apollo on the idea of CalPERS investing a substantial amount of money in a distressed debt type fund. And after I had that initial conversation with Leon Black expressing CalPERS’ interest to invest in a fund like that, I learned Apollo hired Arvco to be the placement agent.
Q. Did that surprise you?
A. It did.
A: I guess I didn’t understand why Apollo felt like they needed to hire a placement agent on something where CalPERS had explicitly indicated an interest in investing in.