Former Centinela chief Baez sues CalPERS(2)

Citing damage to his reputation and business, Cesar Baez is suing CalPERS and CIO Joe Dear for more than $30m.

Cesar Baez, former head of emerging manager-focused fund of funds Centinela Capital Partners, in December sued the California Public Employees’ Retirement System and its CIO Joe Dear for more than $30 million for alleged racial bias and destruction of his business.

Baez is seeking damages for what he claims was “illegal and tortious conduct” by CalPERS and Dear that led to his being forced out of the firm he founded, resulting in a loss of compensation and damage to his reputation and business, according to his complaint filed in California Superior Court for the County of Los Angeles. Baez also is seeking punitive damages.

“At the age of 58, Baez has exhausted his savings, lines of credit and retirement account since CalPERS destroyed his business and reputation,” the complaint stated.


CalPERS on Wednesday filed its objections to the complaint (called a demurrer), calling the allegations “paradoxical”. Among other things, CalPERS said Baez “alleges no facts whatsoever concerning the alleged discrimination”, and his contentions are “non-sensical, internally contradictory and unsupported by the required ‘statement of the facts constituting the cause of action’”.

In a separate statement emailed to Private Equity International Thursday, CalPERS denied any wrongdoing: “We hold all our managers, established and emerging, to the highest standards. CalPERS emphatically denies all of Mr. Baez’s allegations and looks forward to the facts speaking for themselves”.

Baez did not return a request for comment; Centinela partner Robert Taylor declined to comment.

‘Latino’ businessmen

Baez founded Centinela in 2006 along with Taylor and partner Fidel Vargas specifically to respond to an “expression of interest” from CalPERS. The fund of funds raised two investment vehicles with CalPERS, Capital Link funds I and II, for a total of $1 billion. CalPERS also acquired a 15 percent stake in Centinela, according to the Baez’s complaint.

In 2009, Centinela began negotiating with the pension system to raise a third Capital Link fund, according to the complaint. At first, CalPERS allegedly told Centinela it would get the contract for the third Capital Link fund without needing to go through a competitive bidding process, the complaint said.

However, in early 2011, Joe Dear, CalPERS’ chief investment officer, allegedly told Centinela it would not get the contract for the third fund unless Baez was forced out, the complaint explained.

CalPERS left Centinela no other choice but to put a gun to Baez's head and force him to leave.

Baez complaint

CalPERS had become uncomfortable with Baez’s alleged relationships with several “Latino” businessmen and individuals caught up in the California Attorney General’s investigation of misconduct at CalPERS, according to court documents and past interviews.

CalPERS did not accuse Baez or Centinela of any wrongdoing, but allegedly continued to pressure the firm to oust Baez, and Centinela eventually complied, the complaint said. “CalPERS left Centinela no other choice but to put a gun to Baez’s head and force him to leave,” the complaint said.

Despite CalPERS’ alleged pledge to award Centinela the contract once Baez was gone, the system eventually held a competitive bidding process and awarded the $100 million contract to Credit Suisse’s Customized Fund Investment Group. CalPERS officially terminated its relationship with Centinela last year, forcing the firm to relinquish its control of the Capital Link funds.

‘Racial profiling’

Centinela never received contracts through the individuals under investigation, nor committed any crimes, all of which CalPERS was aware of, the complaint said. Therefore, “the fact that Baez is Latino, like the placement agents under investigation, played a major role in CalPERS’ and Dear’s decision”, the complaint said.

“In short, the decision to oust Baez was a straightforward example of racial profiling and bias: because some

Joseph Dear

Latinos had been suspected of misconduct, defendants assumed that all Latinos in the same business had to be part of a ring of influence peddlers. That assumption was false, offensive and illegal,” the complaint said.

However, CalPERS has vigorously objected to this allegation, according to Wednesday’s filing.

“No statements or conduct by Dear or any other CalPERS employee suggesting a discriminatory motive or a bias against Latinos are alleged,” according to CalPERS’ objection. That CalPERS offered to award the third fund to Centinela if it ousted Baez undermines Baez’s contention of racial discrimination as the firm was still being run by a Latino (Vargas) and an African-American (Taylor), CalPERS said.

The retirement system also claimed that under the circumstances presented by Baez, CalPERS and Dear were immune from liability, the objection filing said.

Separate from the court filing, CalPERS also made clear Thursday that it is dedicated to supporting talented emerging investment managers.

“For more than 20 years, CalPERS has been a recognised leader in emerging manager strategies. Today, CalPERS remains strongly committed to emerging manager strategies and has more than $10 billion invested with more than 300 emerging and diverse managers,” the pension system said in the statement.