Pension flub

In addition to being incomplete, the California Public Employees’ Retirement System’s reports to the state Legislature on investments tied to Sudan and Iran contained factual inaccuracies, according to new data released to CityBeat.

The records also show that CalPERS may have more than $1 billion invested in companies working in Sudan and Iran, a significantly higher amount than the tens of millions CityBeat estimated in a Feb. 2 story.

In 2006 and 2007, the Legislature passed laws barring CalPERS from investing in these companies, citing national-security and humanitarian concerns. Under the laws, CalPERS is required to report annually to the Legislature, but this year’s submissions lacked several disclosures, including a policy CalPERS approved last year to bar the sale of the prohibited stock, essentially a defiance of the legislative initiatives. The documents also failed to include calculations of what it would cost CalPERS to sell off each stock, a specific reporting requirement under the legislation.

When CityBeat requested a full, quantified list of prohibited holdings in January, CalPERS claimed such a document did not exist, although it had provided exactly this kind of information in reports on companies accused of using slave labor during World War II as required under legislation passed in 1999. CalPERS did, however, provide details of holdings in two “newly identified” companies: Bharat Heavy Electricals, which operates in Sudan, and China Petroleum & Chemical Corporation, also known as Sinopec, which has ties to both Sudan and Iran.

A few days after CityBeat’s story broke, California Attorney General Jerry Brown ordered CalPERS, as well as the California State Teachers’ Retirement System, to provide the missing information.

“CalPERS and CalSTRS need to honor the state law requiring them to divest from companies doing business in Iran,” Brown said in a statement. “It’s time for our public pension funds to show some leadership and stop supporting companies that do business with a tyrannical regime.”

Assemblymember Joel Anderson, the El Cajon Republican who sponsored the Iran-divestment legislation, says a group of legislators also sent CalPERS a letter demanding further disclosures.

In compiling the new data for CityBeat, CalPERS’ legal team said it discovered an error: The pension fund holds no stock in China Petroleum.

“The December 31, 2009 legislative report for Sudan incorrectly identified this company as being a ‘CalPERS Portfolio Holding,’” CalPERS Senior Staff Counsel Patricia Pechtel writes in an official letter. “CalPERS is taking the necessary steps to address this inaccuracy. We expect to forward amended reports to the Legislature very soon.”

According to CalPERS spokesperson Brad Pacheco, staff and RiskMetrics Group, the outside firm contracted to screen CalPERS investments, confused China Petroleum with China Petrochemical Development Corp., a company that is not tied to Sudan or Iran.

Anderson hopes CalPERS submits complete data before a Feb. 24 hearing scheduled before an Assembly committee.

“The concern is that they’re not doing their job and just saying whatever gets them by that day,” Anderson says. “We’ve had so many different accounts, whether it was in memos or newsletters. I just want to get to the truth and make sure they’re following the law.”

That CalPERS is not invested in China Petroleum does not let the pension fund off the hook. According to the holdings spreadsheet provided to CityBeat, as of Oct. 30, 2009, CalPERS owns stock in 23 companies operating in Iran and 10 companies working in Sudan, some of which overlap. By today’s prices, those holdings could be worth more than $1 billion. That’s a rough estimate, since many of the foreign stocks are sold on multiple international exchanges and domestically in bundles in the form of what are known as American Depository Notes. CalPERS did not disclose which markets it used to purchase the shares.

As large as $1 billion sounds, it represents only one-half of 1 percent of CalPERS’ total $200 billion in global assets.

According to CalPERS’ new numbers, the fund holds more than $310 million in Sinopec Kanton Holdings and Sinopec Shanghai Petrochemical Co. Pacheco claims these two companies “are not China Petroleum and do not have operations in Sudan.” This contradicts findings by RiskMetrics that both companies are subsidiaries of China Petroleum and, therefore, prohibited investments.

Sinopec was one of nine companies operating in Sudan to which CalPERS Board of Administration President Rob Feckner was referring when he said in 2006, “There is no place for these companies in our investment portfolio until the atrocities and human rights violations end.”

Feckner has yet to respond CityBeat’s request to reconcile this statement with CalPERS’ policy.     

Write to davem@sdcitybeat.com and editor@sdcitybeat.com.