It should come as no surprise to anyone who reads this blog that the UC Regents are corrupt. But this article gives some thorough and much-appreciated detail into how Regents Parsky, Wachter, Blum, and Lansing channeled pension funds into their own business investments.
Here’s a brief summary, followed by a link to the article:
UC’s Pension Fund Corruption
According to this article, a group of key UC Regents wrecked the university’s pension fund by dissolving the in-house staff of financial analysts and hiring outside firms, (who happened to be large Republican donors,) at a cost of tens of millions in brokerage and consulting fees paid by the university—and tens of billions of dollars in losses to UC worker pensions.
A Brief Summary of the Article:
In 2000, Regent Gerald Parsky, who had worked in the Nixon Administration and was a major powerbroker in California’s Republican Party, became chair of the Regents’ Investment Committee, and inaugurated a series of drastic changes to the UC pension fund’s investment strategy of the UC’s pension fund. The fund had until that point been managed in-house by UC Treasurer Patricia Small and a small staff of analysts. Under Small, who had put in 28 years at the UC, the fund outperformed comparable funds, with an average return of more than 15%. Part of this success was due to Small’s knack for mitigating risk. During the dot-com bubble, she had hedged bets by investing in long-term bonds, which proved to be a smart move. In fact UC’s pension fund was managed so well that it paid for itself. For 17 years, employees gladly accepted wages that were 10-20% below market value because they did not have to make pension contributions. But this winning strategy was put to an end in 2000.
Once ensconced as investment chair, Regent Parsky worked quickly to shut out Small and pressure her to retire. The committee then decided to out-source investing decisions to Wilshire Investments, another large Republican donor, costing the university tens of millions per year in fees. Still worse, the new outside fund managers opted move a large portion into riskier private equity and real estate investments, which are not subject to federal oversight.
The trio of regents supporting this change—Parsky, Paul Wachter, and Richard Blum, are financiers and are heavily invested in private equity and real estate markets. Under their stewardship, the fund has made investments that raise serious questions about conflicts of interests. According to a recent report, since 2002, the university has “invested $748 million in seven private equity deals in which [Richard Blum] or his firm, Blum Capital Partners, was a major investor.”
Since Small’s ouster in 2000, investment fees and brokerage commissions paid by the UC went from $5.5M–to $52M in 2006. Though the UC pension fund had been running a surplus from 1999 to 2000, in the years that followed, “[n]early every pension portfolio in the country [was] doing better than the university’s … 86 percent of large US investment trusts outperformed the UC pension fund from 2001 to 2006.”
The UC has blamed workers and faculty for pension fund shortfalls, explaining that the problem is that they have not been making contributions. The UC is currently seizing up to 8% of paychecks to cover the billions that have been lost to bad investments.
Links:
http://spot.us/pitches/337-investors-club-how-the-uc-regents-spin-public-funds-into-private-profit/story
http://www.eastbayexpress.com/gyrobase/parskys-party/Content?oid=1083283&showFullText=true
