CalPERS Ponders Divisive Policy –

Concerned that private contractors are pushing public sector employees out of jobs, the California Public Employees’ Retirement System (CalPERS) is considering a new investment policy that would bar it from investing with firms that back those companies.

The new policy might effect future investments in companies that privatize education, health care, prisons and other services traditionally maintained by state and local governments. For instance, a new policy would make CalPERS reconsider putting capital into venture-backed companies like Edison Schools, a New York charter school company backed by JPMorgan Partners and Sprout Group.

Another example is Wall, N.J.-based Student Transportation of America. School districts in eight states have replaced their fleet of school buses with the services of Student Transportation. In 2001, the company completed an $87 million private equity round that included commitments from GTCR Golder Rauner LLC and Rice Sangalis Toole & Wilson. CalPERS is an LP in both funds.

CalPERS was prompted to review its investment practices after hearing the testimony of a bus driver who lost his job.

Although CalPERS’ board is dominated by state politicians with close ties to unions, at least one member urged caution before making any policy changes.

“There may be instances where jobs can best be provided by the private sector,” says California State Treasurer Phil Angelides, a CalPERS board member.

Only two of the 72 pension funds surveyed by CalPERS had specific policies in place that address the issue: neither the New York City Employees’ Retirement System nor the Ohio Public Employees Retirement System will invest with partnerships that pursue privatizations that could eliminate public sector jobs.

CalPERS’ investment committee will consider a policy change at its November meeting.