Founder out at CalPERS-backed Centinela

US fund of funds Centinela Capital Partners undoubtedly had a huge success when it was awarded a $1 billion mandate to run two domestic emerging managers portfolios (Capital Link funds I and II) for the California Public Employees’ Retirement System. But it has never managed to build on that, losing out in attempts to attract additional capital from at least two more big US pension funds.

Now, according to two people with knowledge of the situation, it’s in wind-down mode, after CalPERS declined to extend its investment period in August – and its founder and head, Cesar Baez, has exited the business, leaving partners Robert Taylor and Fidel Vargas in charge.

The failure to attract further capital was not due to any lack of trying.  According to one limited partner with no affiliation to Centinela, but who talked to the firm in the past about a potential commitment, Centinela has been working hard to attract new capital. Indeed, it tried to win mandates from the Teacher Retirement System of Texas (TRS) in 2009 and the Los Angeles Fire and Police Pensions system in 2007, according to pension documents and interviews with multiple sources.

LA Fire and Police pension board members expressed reservations about Centinela because of a “lack of track record” and the fact that the fund of funds only had one client, CalPERS. Centinela eventually lost out on running a specialised mandate for the California pension to StepStone Group, according to minutes from a meeting dated 31 July 2007.

Centinela also tried to win a $250 million emerging managers’ mandate with TRS, and nearly succeeded. However, the deal was derailed by conflict allegations; a whistleblower at the pension system claimed that one of its trustees, Dory Wiley, was pressuring investment staff to award the mandate to Centinela despite them already opting for Parish Capital. Wiley, who did not return a request for comment, had already received a commitment of about $4 million from Centinela to the firm he heads, Commerce Street Capital.

The pension brought in an investigator, Roel Campos, to look into the conflict allegations (which were not limited to the Centinela situation, according to the whistleblower document) – and although the investigation found no wrongdoing on anyone’s part, the pension also did not award the emerging manager’s mandate, its spokesperson told Private Equity International recently.

Centinela has declined to comment, other than to confirm that Baez left, while CalPERS also refused to comment. But the situation appears to illustrate a truth universally acknowledged in the business world: it’s always dangerous to be too reliant on a single client.