Calpers eyes maintaining 7.75 percent return target

SACRAMENTO, California Wed Mar 16, 2011 8:17am EDT

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SACRAMENTO, California (Reuters) - A committee of board members of Calpers, the biggest U.S. public pension fund, voted on Tuesday to maintain its annual rate-of-return target of 7.75 percent rejecting a plan to lower it to 7.50 percent.

Government agencies that are members of Calpers, the California Public Employees' Retirement System, had lobbied hard against the plan to lower the target rate.

A lower rate would have increased employer contributions to the pension system, which could have required increased personal contributions to retirement accounts from public employees, diverting revenue from services to pension payments or higher taxes.

Calpers President Rob Feckner told Reuters that with government employers, including California's state government, facing tough budget times, he could not support lowering the fund's return target.

Lowering the rate to a more conservative level has been the subject of extensive debate within the pension fund, which is recovering from steep investment losses from the sharp slump in financial markets.

"The major concern was the state of the economy and putting more of a burden on employers," Feckner said. "I think 7.75 percent is still a reasonable place to be."

The committee's recommendation will be taken up on Wednesday in a vote by the full Calpers board, which is facing up to another controversial issue roiling the fund.

Calpers on Tuesday released a report by the law firm it hired to review how placement agents have been operating at the fund and tarnishing its reputation.

The agents are middle-men who provide marketing services to investment managers to help them win business from pension funds. They have been the focus of an extensive review by Calpers, which has been buffeted by probes of a former board member turned placement agent and his firm's connections to a former fund chief executive.

Calper's report was scathing with regard to former Calpers CEO Fred Buenrostro and, to a lesser extent, former fund board member and Investment Committee Chair Chuck Valdes.

The report said Buenrostro failed in his duties, noting he had taken gifts from former Calpers board member turned placement agent Alfred Villalobos and "apparently inserted himself in the investment process in a manner inconsistent with prior practice at CalPERS, pressing its investment staff to pursue particular investments without evident regard for their financial merits."

Valdes "also brought pressure to bear in his own way on the Calpers investment staff with regard to investments associated with ARVCO," a Villalobos' firm, the report said. "Valdes also appears to have received gifts from other individuals and entities with business interests involving Calpers," including other money managers and placement agents.

"While we express no opinion on whether Valdes violated criminal or general civil laws, a matter we leave to law enforcement authorities, we do believe that his actions were inconsistent with the standards of care and loyalty expected of Calpers Board members and public servants entrusted to protect pension fund assets," the report said.

Federal and state authorities are probing placement agent activities at Calpers. Its board has been tightening rules for the middle-men and throwing its weight behind legislation to better police the agents.

The full report for Calpers is available here

(Reporting by Jim Christie; Editing by Padraic Cassidy)

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