CalPERS drops PCG after review

The pension is severing its ties with Pacific Corporate Group and has enlisted Capital Dynamics to manage CalPERS' $480m Clean Energy & Technology Fund.

The $208 billion California Public Employees' Retirement System is ending its partnership with Pacific Corporate Group as part of the pension's strategic review of its private equity programme.

An independent investment team from Aviva Capital, a former joint venture with PCG, will continue to manage more than $1 billion for CalPERS in the pensions Global Opportunities Fund I and II. Aviva plans to announce a new name “in the near future”.

CalPERS has also enlisted Capital Dynamics to manage a $480 million vehicle launched in 2007 that was previously managed by PCG. Capital Dynamics will not receive a new allocation in the fund, but will be able to make follow-on investments from uncommitted capital.

CalPERS will retain its relationship with a part of the team formerly known as PCG Corporate Partners, which will manage the remaining investments in two Corporate Partner vehicles. In September, the Sacramento Bee reported that CalPERS' relationship with PCG was “being examined” and that the pension was “rethinking” its ties to PCG, as well as the rest of CalPERS' investment partners.

During PCG's more than 20 year relationship with CalPERS, the firm generated a net IRR in excess of 23 percent while producing over $3 billion in investment gains, according to a company spokesperson.

Earlier this year, former managing director and co-president of PCG Capital Partners Stephen Moseley filed a lawsuit against the La Jolla, California-based alternatives advisory firm for engaging in “fraudulent business practices”. Moseley resigned from PCG in September 2006 “for reasons related to disagreements regarding the proper way to govern a service organization, select investments, manage conflicts of interest and support client interests”.

A cross-complaint filed by PCG against Moseley claims that Moseley conspired with the Morris Group to give former political operative in New York Henry Morris a hidden interest in a prospective PCG joint venture, and that Moseley concealed his knowledge of and participation in the illegal kickback scheme and Morris' secret interest from PCG.

The cross-complaint also claims the New York Attorney General found no wrongdoing by anyone at PCG except Moseley, and that Bower had no knowledge of Morris' participation in the illegal kick-back scandal.

In April, The Teachers' Retirement System of the City of New York announced it was seeking a private equity investment consultant for its $34 billion pension fund. At the time of the RFP, TRS's current private equity consultant was PCG. In July, the pension was said to have chosen Pennsylvania-based Hamilton Lane as its private equity consultant, according to Bloomberg. PCG, which advised on the city's five public pension funds, would continue to advise the four other systems, according to the report.