CalPERS began reevaluating its relationship with PCG earlier this year, due to the close relationship between PCG chief executive Chris Bower and Alfred Villalobos, a former CalPERS board member who has been accused of fraud.

Sources tell me that CalPERS effectively gave PCG an ultimatum: Get rid of Bower, or we get rid of you.

A PCG spokesman denied that scenario when asked last week. He has not yet responded to follow-up requests for comment.

A PCG rival called Capital Dynamics will take over some of the orphaned work, but I’m not yet sure if it also will assume the discretionary funds managed by PCG (including a $500 million cleantech vehicle).

Update II: “Aviva Capital” also is a group of former PCG staffers who are spinning out on their own. Not sure which ones (yet).

Update III: Seems Aviva Capital is led by the former PCG International team, which includes Steve Cowan, Stephen O’Neill and Gene Pohren.

UPDATE IV: CalPERS has just sent over the press release. Here it is, in its entirety:

SACRAMENTO, Calif. – The California Public Employees’ Retirement System (CalPERS) is severing its ties with Pacific Corporate Group (PCG) as part of the pension fund’s ongoing strategic review of its private equity program and investment partners.

Aviva Capital LLC (Aviva), a former joint venture partner with PCG, will continue to manage over $1 billion of invested and committed capital in two emerging markets investment vehicles for CalPERS – Global Opportunities Fund 1 and 2 – under an independent investment team, and will be announcing a new name for the company in the near future.

CalPERS has also tapped Capital Dynamics to take over management of its Clean Energy & Technology fund, which was launched in 2007 and previously managed by PCG.

“We’re pleased to continue to support the Aviva team and are confident in their capability to succeed as an independent manager,” said CalPERS Chief Investment Officer Joe Dear. “Aviva has demonstrated an ability to find promising investments in emerging markets and we are excited about the prospect of continuing to build CalPERS exposure in these regions.

“We also welcome Capital Dynamics to the CalPERS portfolio,” said Dear. “This new relationship and the repositioning of the assets with the new independent teams is part of the systematic restructuring of our private equity program to reposition our assets and focus on improved performance, accountability and transparency with our partners.”

The pension fund exercised “no fault rights” and enlisted Capital Dynamics to step in and manage the Clean Energy & Technology Fund – a $480 million vehicle comprised of partnerships and co-investments in the “clean tech” sector.

Primary oversight of the investments will be managed from Capital Dynamics’ Palo Alto, California office that will leverage resources throughout its global organization to maximize the value of this portfolio, including its dedicated group of clean tech investment professionals.  CalPERS selected the firm from its private equity spring-fed adviser pool following a thorough review of potential candidates. Capital Dynamics will receive no new allocation in the Clean Energy & Technology fund but may make follow-on investments from uncommitted capital.

CalPERS will retain a relationship with a part of the team formerly known as PCG Corporate Partners to manage the remaining investments in the two Corporate Partner vehicles. Both funds are in the harvest period, and the newly independent team known as KMCP Advisors, based in San Diego, California has been tasked with exiting the remaining investments over the next few years.

The CalPERS AIM program returned 30.9 percent on investment for the 12 months ending March 31, 2010. The asset class has a total market value of approximately $28 billion.

With approximately $216 billion in assets, CalPERS is the largest U.S. public pension fund. It administers retirement benefits for more than 1.6 million active and retired State, public school, and local public agency employees and their families. For more information about CalPERS, visit www.calpers.ca.gov.