Last week I got word that CalPERS had effectively given an ultimatum to Pacific Corporate Group, the La Jolla-based private equity consultant with more than $1.5 billion in CalPERS mandates: Either significantly reduce the ownership and managerial control held by CEO Chris Bower, or we’ll trigger a no-fault divorce.
At issue was Bower’s longstanding relationships with Al Villalobos and Fred Buenrostro, a pair of former CalPERS officials who have been charged with fraud by state authorities. Bower himself has not been charged with any wrongdoing, but CalPERS chief Joe Dear seems determined to wipe away all vestiges of his system’s scandal-plagued past.
So I did the journalist thing, and rang PCG. They sent me to a spokesman, who denied the aforementioned scenario. “This is not true,” he wrote. “Are you actually going to publish that?”
Now PR folks lie all the time on background, but almost never on-the-record. So I sat on it.
Fast forward to early yesterday afternoon, when word came that CalPERS was “severing its ties” with PCG. Moreover, a second source confirmed that CalPERS made its decision after Bower refused to relinquish adequate control.
We got the story up before anyone else – thirty minutes before a CalPERS press release hit the wires – but I was pissed. My first impulse was to lash out at the spokesman, even though he surely had been misled by his client. And I did so. (Even though the guy is a consummate pro who I’ve worked with before).
But the proper reaction would have been to blame myself. As the saying goes: Fool me once, shame on you. Fool me twice, shame on me.
In February 2007, I was reporting for another publication on CalPERS’ decision to award two $400 million mandates to PCG. Multiple sources told me that CalPERS actually had agreed to award the mandates five months earlier, but that it had balked after three PCG execs quit en masse (they had lost a game of compensation chicken to Chris Bower). In other words, CalPERS had told Bower that he had to restructure in order to keep the contracts.
There was precedence for such a trade-off. Back in 2000, CalPERS was considering PCG for a $500 million “Corporate Partners Program” mandate. Trouble was that PCG had just experienced some personnel turnover — again due to Bower’s disinclination to share economics. CalPERS insisted that PCG restructure itself into some sort of official partnership, in order to keep the worker bees happy. PCG did so, and got the deal.
In 2007, however, PCG strenuously denied my assertions. It said there was no quid pro quo, and that the only involvement by CalPERS was one of consultation. The firm also believed I was “out to get” them, according to a PCG insider.
And PCG wasn’t alone. CalPERS also said that the two moves were independent of one another. In fact, I remember arguing the point with a pension fund rep, who kept saying that I was imagining conspiracies.
My solution was to briefly discuss the likely backstory in a larger column, but to soft-sell it as unconfirmed speculation. Again, on-the-record denials held major sway.
Not surprisingly, it turns out that my original sources were correct. So said a (different) CalPERS spokesman in a recent interview with the Sacramento Bee, following similar testimony by a former CalPERS official in the Villalobos proceedings.
This is a very long way of apologizing to you, dear readers. I should have reported what I knew to be true last week.
When it comes to PCG and CalPERS, it won’t happen again. Of course, considering that the two are breaking up, I guess it can’t.
