SEC to Investigate Calpers

Public Pensions have been racked by major scandals lately, on the one hand the benefits promised in exchange for short term political favors are underfunded creating massive state liabilities which cannot be paid. The other scandal is the pension funds being used for ill advised investments in exchange for favors and bribes, as seen in New York. What makes the California case so interesting is that the SEC might be swooping in, and if they do what they find probably won't be pretty.

The fund, the California Public Employees’ Retirement System, known as Calpers, lost about a quarter of its total investment portfolio during the financial crisis, leaving the state responsible for replacing billions of dollars each year and contributing to its huge deficit. The question is whether California adequately disclosed in the preceding years how risky the pension investments were and how much money it might need to cover any shortfall.

But it is unclear whether investigators are focusing on those risks or on possible conflicts of interest in steering investments to related parties, the subject of a separate investigation by the attorney general of California.

S.E.C. officials declined to confirm an investigation, citing agency rules. But the person with knowledge of the investigation said it was among the agency’s top priorities. A spokeswoman for Calpers, which is America’s largest pension fund with assets of about $220 billion, said it had not been contacted by the S.E.C. about its accounting or about financial disclosures.

“The SEC has an ongoing look at pension funds in California” because of revelations about the use of placement agents who recommended investment managers, said Patricia Macht, a spokeswoman for Calpers.

Along with concerns about the use of placement agents, regulators have grown increasingly concerned about whether states may have hidden financial weaknesses, particularly in their pension portfolios, and whether investors who buy municipal bonds can fully appreciate the risks.

(I know blogging has been slow at The 46, but I have been very busy. In time I should pick up the pace again)