CalPERS Puts Franklin Resources on ‘Watch List’
The board of California’s largest public pension fund decided Tuesday to allow Franklin Resources Inc. to continue managing state pension money but placed the troubled mutual fund giant on its official “watch list” for further scrutiny.
It was the third action by the $161-billion California Public Employees’ Retirement System against investment management firms since a scandal erupted in the mutual fund industry last fall.
The CalPERS decision was spurred by “continuing issues that are lingering over the company’s practices” and could last for “12 months or longer,” said CalPERS spokesman Patricia K. Macht.
San Mateo-based Franklin Resources was the first California fund firm to be charged with wrongdoing in the widening probe into the industry’s practices.
Massachusetts officials this month accused the company of allowing a Las Vegas investor to shift money in and out of the fund in improper “market-timing” trades.
The company is also being investigated by the California attorney general’s office and the Securities and Exchange Commission.
Franklin Resources will continue to manage $826.2 million in CalPERS money through its Franklin Advisors subsidiary, which has managed the funds since September 2002.
But CalPERS will closely monitor Franklin’s behavior over the next several months and will decide at a later date whether to retain the firm as a financial advisor.
“We are extremely pleased that we retained our important relationship with CalPERS and look forward to continued strong results and removal from the watch list in the months ahead,” said Lisa Gallegos, director of corporate communications for Franklin.
In December, CalPERS put Alliance Capital Management on its watch list. The company has managed an $815.7-million U.S. stock portfolio for CalPERS since 2000 and a $618.1-million emerging market fund since late 2002.
In November, CalPERS fired Putnam Investments as manager of $1.2 billion in pension assets.
The board determined that Putnam’s former management breached its fiduciary duty by failing to act on staff reports of improper trading activities. CalPERS also acted because some of the Putnam staff implicated in alleged wrongdoing also worked on the CalPERS account.
The board Tuesday did not provide details regarding its vote to put Franklin on its watch list.
In other action Tuesday, the board told staff and consultants to spend another month evaluating recent Philippine government investment laws after hearing a plea from that nation’s ambassador.
CalPERS had threatened to pull its money out of investments in the Philippines because the country didn’t meet a set of standards for overall investment climate and political stability.
The ambassador, Albert Del Rosario, argued that his country would be unfairly punished if CalPERS pulled the plug on $67 million in investments.
The Philippines scored 1.87 on a CalPERS index that requires so-called emerging market nations to score at least 2.00 to qualify for CalPERS investments.
Using the same index, the board staff noted that Malaysia had qualified for CalPERS investments while Argentina, Turkey and Peru were put on a one-year probation.
