CalPERS Reviews Privatization –

Responding to concerns from union members that it was investing in companies that privatize their public sector jobs, the California Public Employees’ Retirement System’s (CalPERS’) investment committee will consider a policy that would restrict its ability to invest with private equity funds that finance those privatizers.

After a brief discussion in mid-November in San Diego, the pension fund’s investment committee voted to further explore a policy that might protect public sector jobs throughout the United States. The policy would allow it to invest only in private equity funds that agree to restrict their investments in privatizers, and if not, allow CalPERS to opt out of individual investments that negatively affect public sector jobs.

The policy will come before the board again in February, at which point it may vote to accept the change.

A new policy would affect future investment in companies that privatize education, health care, prisons and other services traditionally maintained by state and local governments. A new policy would make CalPERS reconsider putting capital into venture-backed companies like Student Transportation of America in Wall, N.J. In 2001, the company completed a private equity round that included commitments from GTCR Golder Rauner LLC and Rice Sangalis Toole & Wilson. CalPERS is a limited partner in both funds.

Pension Consulting Alliance (PCA), the Los Angeles-based consultant that prepared a report for CalPERS on the subject, found that most private equity fund managers felt that such restrictions would not materially affect their ability to carry out their investment strategy. “We believe that much of the potential impact of a privatization policy on CalPERS’ investment opportunity set, and many of the concerns of investment managers, can be mitigated by the specific of the policy language and its implementation,” PCA writes in its report.

CalPERS was prompted to review its investment policies in September after the investment committee heard the testimony of a bus driver who lost his job. Representatives of the American Federation of State, County and Municipal Employees, the State Employees International Union and the California School Employees Association also urged CalPERS to consider the policy change.