JAY MATHER / Bee file, 2005

CalPERS headquarters.

CalPERS drops investment firm that accused fund of bias

Published: Thursday, Sep. 13, 2012 - 12:00 am | Page 6B
Last Modified: Wednesday, Jul. 10, 2013 - 10:44 pm

CalPERS has fired a firm entrusted with managing $1 billion of the pension fund's money – five months after the firm accused CalPERS of racial discrimination.

The California Public Employees' Retirement System confirmed Wednesday it is severing ties with Centinela Capital Partners, a Los Angeles firm founded by two Latinos and an African American.

Joe Dear, CalPERS chief investment officer, said Centinela's duties will be transferred Oct. 9 to Credit Suisse.

CalPERS wouldn't comment on the firm's allegations of discrimination, which were dismissed by a separate state agency. The pension fund also wouldn't say why Centinela was terminated.

But CalPERS insisted that it is committed to doing business with "emerging managers" – newer investment firms, often owned by minorities or women.

"Our track record in this regard is clear," CalPERS said in a prepared statement. "In the last three years alone CalPERS has committed approximately $1 billion in emerging manager strategies."

Officials suggested Centinela's removal was part of a broader, ongoing shake-up of CalPERS' lineup of outside management firms.

"We have to make tough decisions about who manages our assets," Dear said in remarks prepared for a legislative hearing today on pension investments. He added that the performance of CalPERS' emerging managers "has been mixed."

First hired in 2006, Centinela has overseen two funds worth a combined $1 billion. One of the funds earned an average annual return of 7.2 percent through last December, the other 0.6 percent, according to CalPERS data.

After losing out on a bid to manage a third fund, Centinela filed a complaint against CalPERS and Dear in April with the California Victim Compensation and Government Claims Board. The agency handles monetary claims against state agencies and employees.

Centinela's complaint said CalPERS promised the firm a third contract last year, worth $100 million, if it got rid of Latino co-founder Cesar Baez. CalPERS was concerned about Baez's relationship with a Latino placement agent under investigation for his work with the pension fund, the complaint said.

The businessman isn't identified but is almost certainly Alfred Villalobos, who was accused in a state lawsuit of bribing CalPERS officials to win investment deals for his Wall Street clients. Villalobos, who has also been the target of a criminal probe, has denied any wrongdoing.

Centinela said it dumped Baez but didn't get the contract. CalPERS "failed to honor its promise," the complaint said. The firm added that neither Baez nor Centinela was accused of any wrongdoing. It said CalPERS' refusal to give Centinela the new contract was because of racial discrimination.

The board dismissed the complaint in June, saying the dispute belonged in the courts. Centinela hasn't yet sued CalPERS, said pension fund spokesman Brad Pacheco.

Centinela's lawyer, Peter Ross, declined comment.

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