CalPERS used to set the gold standard for public pension funds in its investment approach, its integrity, and its management. A financial scandal and lackluster investment returns have eroded its reputation in recent years, but the CalPERS board better hope that no one pays too much attention to how it's handled its latest intramural controversy if it hopes to preserve what's left of its credibility.
Credibility is an important quality for the California Public Employees Retirement System, the largest public defined-benefit fund in the country. At the moment, it hangs by a thread.
The controversy involves an astonishing attack launched against Board of Administration member J.J. Jelincic by one of his colleagues, William J. Slaton, during an open meeting on Jan. 19.
As we reported, Slaton accused Jelincic of repeatedly disclosing confidential board material to the public. He demanded that Jelincic resign. If Jelincic refused (as he did), Slaton wanted him to be barred from all closed sessions of the board or its committees—punishments the board apparently had no legal authority to impose. Slaton refused to provide details of Jelincic's supposed misdeeds in public.
The affair now appears to have reached its dismal conclusion. CalPERS Board President Rob Feckner has determined that Jelincic did disclose nonpublic information, but won't say what it was. The punishment, according to sources, is that Jelincic is to attend a one-day public conference by the California State Bar on the state's open meetings and public records laws already scheduled for May 19 at UC Berkeley Law School.
As "discipline" goes, that's risibly meager. "If I'd have known that conference existed," Jelincic says, "I probably would have asked to go to it."
The outcome suggests that Jelincic's offenses must have been minor indeed, certainly not warranting his resignation. It also suggests that Slaton was out of line in publicly lodging explosive but unspecified accusations against Jelincic in public.
Slaton didn't respond to my questions about the outcome of the case. Feckner told me by email that he decided that a confidential resolution is "the best way to provide leadership to the Board in terms of collegiality, civility and ethical conduct" and is "appropriate under the circumstances." He concluded, "As far as I'm concerned, this matter is closed."
Jelincic, as we observed in the past, isn't everybody's mustard. Slaton isn't his only board colleague to find his manner grating, an opinion undoubtedly shared by some CalPERS staff members who have come under his lash at board hearings and have known him as a fellow staffer — he worked for the CalPERS investment office before getting elected to the board as a representative of the fund's beneficiaries. In 2011 the board censured Jelincic for alleged sexual harassment of co-workers.
But he does ask questions that other board members are content to let lie. After he questioned CalPERS private equity officials in August 2015 about the fees being charged by their portfolio managers, CalPERS became much more open about how much it was paying, and more skeptical about whether the portfolio was even worth keeping.
Feckner's private resolution bears all the signs of an effort to head off further embarrassment for the board. But since it leaves Slaton's charges hanging in midair, it's hard to see how it enhances "collegiality, civility and ethical conduct."
That's especially so because Jelincic insisted from the outset that the specifics of Slaton's charges be aired in public. "If you're going to say I ought to resign," he told me this week, "then you should say, 'This is what you did,' and give me a chance to defend myself."
CalPERS officials say Jelincic and his lawyer agreed to the private resolution, but he says that they didn't have any choice — Feckner had the authority to operate behind closed doors. As recently as the board's Feb. 15 meeting, Jelincic was still demanding a public proceeding.
"I was publicly slandered," he said then. "I should have the opportunity to defend myself in open session. If there is discipline, it ought to be imposed in open session."
Feckner also says that a private resolution is proper because the board material that Jelincic was accused of disclosing was, after all, confidential. But not any more, obviously, since the charge is that it reached the public by his actions. Feckner says he "did not want any issues that were originally discussed with the Board in private to now officially be aired in public, regardless of whether they had already been revealed."
Jelincic late Tuesday threw down the gauntlet again with his board colleagues. "I have tried to be cooperative," he wrote in an emailed statement, "but recent events have shown that my cooperation has been taken as tacit agreement that the charges are legitimate. They are NOT."
He did confirm two specific charges against him that previously had leaked out, but that don't make CalPERS look any better. He says he was accused of revealing in November the confidential information that CalPERS had adopted a new asset allocation — that is, had rebalanced its various investment portfolios. Yet that fact had already appeared on a board meeting notice and Chief Investment Officer Ted Eliopoulos had confirmed it in an open session of a board committee.
The second charge involves a consultant's report the board commissioned to examine its private equity investments, a perennially underperforming portfolio about which Jelincic has been raising questions for years. One can understand why CalPERS wanted to keep this report under wraps, because it seems to have been overpriced and under-informative. Yves Smith, the ace financial commentator at nakedcapitalism.com, terms it a "garbage-in, garbage-out private equity whitewash" based on dubious methodology.
In any event, the report had been leaked earlier — Jelincic says not by him. He says he merely had commented that the consultants hadn't found any compliance violations of its investment contracts with private equity portfolio managers. The fact that CalPERS had contracted with the firm, FTI Consulting, was public information.
Feckner's resolution leaves entirely too much under wraps. A board member still stands accused of leaking confidential information, but there's no way for the public to assess whether his ostensible actions were serious, minor, inadvertent, or perhaps even justified. The propriety of one board member pointing a finger at another in open session remains unresolved. The board's policy on what's public and what should be confidential remains infuriatingly foggy.
Collegiality and civility surely are important factors in making a body like the CalPERS board function smoothly, but they can too easily shade into lethargy. CalPERS' performance in recent years suggests that the latter may be its real problem. The question raised by Feckner's ostensible resolution of Slaton's accusations is why this breach of collegiality and civility was considered acceptable in the first place.
4:35 p.m.: This post has been updated with a further statement from J.J. Jelincic.