CalPERS is reviewing its relationship with Apollo Management, a big private-equity firm that hired controversial placement agent Alfred Villalobos to obtain investment business from the pension fund.
CalPERS spokeswoman Pat Macht said the review began in May and isn't tied to a separate review, begun two weeks ago, of Villalobos' activities. Rather, the review is focusing on Apollo fund performances and other issues, she said. The Apollo investments had been doing poorly as of last spring but have rallied lately, according to CalPERS data.
The California Public Employees Retirement System has been investing with Apollo since 1995 and currently has more than $3.4 billion poured into various Apollo funds. Two years ago it spent an additional $600 million to buy a 9 percent equity stake in the New York firm.
The look at Apollo, first reported in the Wall Street Journal, is part of a larger CalPERS review of its relationship with the private-equity industry begun last spring, Macht said.
"It's an evaluation of the economics of the relationship and all that stuff," Macht said.
Among other things, CalPERS has been chafing at the fees paid to some private- equity firms and hedge funds and has been trying to use its financial heft to extract better terms. CalPERS is America's largest public pension fund, with assets of $199 billion.
"Everything is a buyer's market today," Macht said.
The review also will examine CalPERS' direct equity investment in Apollo. The pension fund is forbidden to disclose what its 9 percent stake in Apollo is currently worth, said CalPERS spokesman Clark McKinley.
The existence of the review comes amid increased scrutiny of the relationships among public pension funds, private-equity firms and the marketing representatives known as placement agents.
Placement agents are hired by private-equity firms to secure investment commitments from funds such as CalPERS.
In mid-October, CalPERS disclosed that Villalobos – a former CalPERS board member who runs a placement-agent business in Stateline, Nev. – earned $50 million in fees obtaining business from CalPERS. A big chunk came from his work for Apollo.
CalPERS hired Los Angeles investment firm Houlihan Lokey Howard & Zukin to look at Apollo because it is CalPERS' largest private- equity investment partner.
Documents released by CalPERS show that the Apollo investments improved in recent months.
For instance, a fund that had lost 60 percent of its value through March 31 had cut its losses to 16 percent through June 30 and was "expected to fully recover as of September 30," according to a CalPERS memo.
An Apollo official told the Journal the firm expects "to continue to be long-term partners" with CalPERS. Apollo declined to comment for this story.
Call The Bee's Dale Kasler, (916) 321-1066. Read his blog on the economy, Home Front, at www.sacbee.com/blogs.
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