CalPERS investment partner CIM to cut fees, stop using go-betweens


A major real estate investment fund has agreed to cut its fees by $50 million over five years and not use controversial sales intermediaries to help close deals with the California Public Employees’ Retirement System.

CIM Group in Los Angeles entered into a “new strategic relationship” with CalPERS, Joseph Dear, the fund’s chief investment officer, said Wednesday during a CalPERS board meeting in Long Beach.

CIM has invested about $1 billion of CalPERS’ capital in urban real estate projects, such as the Third Street Promenade in Santa Monica, the Sunset and Vine tower in Hollywood and a number of downtown Los Angeles residential loft conversions.


The new relationship is similar to three other accords that the $219-billion pension fund has signed with investment partners over the last few months.

The agreements are part of a CalPERS restructuring of private equity and real estate investments in the wake of steep recession-related losses and a scandal that erupted last year over the use of the sales intermediaries, known as placement agents.

In all, CalPERS received commitments from partners to waive $215 million in management fees and eliminate the use of placement agents. Its largest private equity manager, Apollo Global Management, accepted a $125-million fee reduction in April.

The fee reductions are intended to compensate CalPERS for any costs it may indirectly have paid because of the large commissions paid by investment partners to placement agents.

One such agent, Alfred J.R. Villalobos, a former CalPERS board member and Los Angeles deputy mayor, received more than $50 million in commissions for helping investment funds, including Apollo and CIM, get money from CalPERS.

According to documents released by CalPERS, Villalobos was paid $9.6 million in commissions from CIM for investments made between 1998 and 2000. CIM paid a portion of those fees in the form of a $1.1-million loan to Villalobos to build a 9,100-square-foot mansion in Nevada overlooking Lake Tahoe.


In May, the state sued Villalobos and a business colleague, former CalPERS Chief Executive Federico Buenrostro Jr., alleging they fraudulently made and received gifts intended to influence CalPERS board investment decisions.

Villalobos and Buenrostro have denied the accusations, and Villalobos and his firm, Arvco Capital Resources, have filed for bankruptcy protection in Reno.

CIM said it had not used any placement agent, including Villalobos, in a CalPERS deal for at least the last decade and didn’t expect to use them in the future.

The CalPERS agreement with CIM is the result of a 16-month special review of placement-agent activity at the pension fund.

Philip Khinda, a Washington securities lawyer who conducted the internal review, and CalPERS also have been cooperating with ongoing probes by the state attorney general and the U.S. Securities and Exchange Commission.

“Hopefully, we know all there is to know on those matters [relating to CIM] and this puts all of them to rest,” said Khinda, a partner in the firm Steptoe & Johnson.