CalPERS, CalSTRS balk at bill to limit foreign investments

California's public pension funds are gearing up against a bill in the Legislature that would halt new investments in private- equity firms partially owned by foreign governments with spotty human-rights records.

CalPERS and CalSTRS say the bill, AB 1967, would cost them billions of dollars in lost revenue.

"It would put us in a box," said Rob Feckner, board president of the California Public Employees' Retirement System.

The bill's author, Assemblyman Alberto Torrico, called the claims "exaggerated."

CalPERS' investment committee postponed voting on a resolution opposing AB 1967 Monday after hearing that Torrico, D-Newark, is willing to amend the bill. But Feckner said he doubts Torrico would make enough changes to satisfy CalPERS.

Earlier this month, the California State Teachers' Retirement System's board passed a resolution opposing Torrico's bill.

The bill is mainly targeted at powerful private-equity firm Carlyle Group. It is sponsored by a Carlyle nemesis, the influential Service Employees International Union.

The SEIU has been trying to organize workers at a nursing-home chain purchased last year by Carlyle and has been carrying out a public-relations campaign over Carlyle's investment practices.

Torrico's bill would prohibit CalPERS and CalSTRS from investing in private-equity firms that are wholly or partly owned by foreign governments that don't comply with major human-rights treaties. The bill specifically cites the United Arab Emirates, whose member state Abu Dhabi is a Carlyle investor. The State Department says the emirates' human-rights record is poor.

In an interview Monday, Torrico said he isn't attempting to advance SEIU's interests. Rather, the bill represents "doing the socially responsible thing," he said. "We shouldn't be profiteering from these regimes."

AB 1967 wouldn't force Cal- PERS or CalSTRS to sell their existing multibillion-dollar investments in Carlyle or Apollo Management, another private-equity firm that counts Abu Dhabi as an investor.

But by halting the flow of new dollars, the bill would cut off much of their access to the often-lucrative world of private equity, the two funds say.

A CalPERS staff report issued last week said many other major private-equity firms will likely sell shares to foreign governments.

The report said Torrico's bill would cost it $1.2 billion a year over 10 years. CalSTRS estimates it would lose $1.5 billion to $5.3 billion over five years.

If it passes, AB 1967 wouldn't mark the first time the Legislature has limited the pension funds' investment policies based on geopolitical concerns. Lawmakers have also banned investments in companies doing business in Sudan and Iran.

Gov. Arnold Schwarzenegger hasn't taken a position on Torrico's bill.

On a separate matter, CalPERS' investment committee endorsed a multistate campaign led by State Treasurer Bill Lockyer to nudge the big Wall Street credit-ratings agencies to give state and local governments more favorable treatment.

Lockyer and treasury officials in other states contend that Wall Street holds municipal bonds to a higher standard than corporations when ratings are set. The better the rating, the lower the interest rate the borrower must pay, and government entities say they aren't being rated highly enough given their safety record.

"The state of California has never defaulted on a bond; we're never going to default on a bond," said Lockyer, a member of the CalPERS investment committee.

About the writer:

• Call The Bee's Dale Kasler, (916) 321-1066.