Responding to concerns from union members that it was investing in companies that privatize their public sector jobs, the California Public Employees’ Retirement System (CalPERS) investment committee will consider a policy that would restrict its ability to invest with private equity funds that finance those privatizers.
This week the investment committee plans to consider two policy options at its monthly meeting in Sacramento.
The first would allow investments in partnerships that agree to restrict their investment in privatizers nationwide, or allow CalPERS to opt out of individual investments that negatively affect public sector jobs. This would require active monitoring of each fund’s investment in individual portfolio companies.
Alternatively, CalPERS may adopt a policy whose scope is limited to California. This policy option would allow for investments in funds that are not likely to invest in privatizers and has no opt-out option. This policy would not require fund managers to sign side letters with CalPERS and would not require active monitoring of portfolio companies.
A new policy would effect future investment 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 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 specifics 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 to Student Transportation. 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.
CalPERS’ investment committee is not likely to make a change to its investment policy when it meets this week. Instead, it will discuss and refine the policy before making a final decision next year.
Email Carolina Brauncshweig