As Bill Black and we described at length earlier this week, CalPERS’ board is moving forward with a plan to strip the one board member who does his job, JJ Jelincic, of meaningful authority. Black, who is a former general counsel of a major financial institution in addition to being a law professor, slammed CalPERS for planning to take an action well beyond its legal authority, and its general counsel Matt Jacobs for actively supporting a breach of fiduciary duty and in Black’s words, a “sick culture”. Black also pointed out that it was prejudicial as well as facially slanderous for board member Bill Slaton to accuse Jelincic of leaking confidential material that was so sensitive that it allegedly endangered board functioning without providing a single example of misconduct. Bear in mind that Jelincic pointed out that past breaches of confidential made by others had been falsely attributed to him.
It looks as if that sorry pattern is about to repeat itself.
Since the attack against Jelincic was launched took place nearly two weeks ago, I contacted Jelincic to see if he had any updates about the claims being made against him. He’s learned from the grapevine that what Slaton and his allies see as the “gotcha” charge against him, is that Jelincic referred to a new asset allocation at the November 2016 Finance & Administration meeting, before it was officially announced in December.
Here is what Jelincic said on November 15:
Given the last 4 asset allocations this Board has made, including the one made in closed session in October, applying the, what I think are, realistic expectations, and they’re higher than our consultants are currently giving us. But given our current asset allocation, I do not think we can justify a discount rate of above 6 1/4, unless we’re going to change the assets. And I think that that’s probably what we really need a discussion about.
Oh, Jelincic admitted that the board approved a new asset allocation in an October closed session! That means he was revealing closed session information, a violation of California law! Bad Jelincic! Off with his head!
Actually what this proves instead is something I stated earlier this week: that the odds are high that Slaton and his allies have no idea what “confidential information” amounts to.
Anything that has already been made public, by definition, cannot be confidential. And the information Jelincic presented was already public.
First, all closed session decision items have to be put on an agenda that is published at least ten days before the meeting in question. Jelincic mis-spoke when he said the decision was made in October, since there was no board meeting that month. But you can see the item listed on CalPERS’ agenda for September:
Similarly, Chief Investment Officer Ted Eliopolous also mentioned the asset allocation change prior to when Jelincic spoke about it. So if you harbored any doubt as to whether the board did approve the change recommended by staff, this would have put it to rest. From Elioupoulos during the Investment Committee meeting the day before, November 14:
Now, the potential for inflation has already been incorporated somewhat into bond pricing as bond yields have moved 25 basis points this past week and the inflation break-even has moved 20 basis points this past week.
For now, we do not see any reasons to change our investment allocations and profile, which we recently adjusted and will be discussing at our December meeting.
Now why would this even be worth getting concerned about? The reality is that Jelincic committed the cardinal sin of saying that that it was his personal view that the resulting allocation (remember, it is “current” because it was implemented shortly after the board approval) was not going to get to the target return.
If you continue reading the transcript which we have embedded below, starting on numbered page 130, Richard Gillihan, the board member who is the governor’s cabinet secretary, spoke immediately after Jelincic. He supported Jelincic’s view that the other board members that the time for pretending is past:
…as Board members, we shouldn’t be hiding behind artificial processes and dates to take action. This is something that if you care about this system, if you’re concerned about the payment of benefits to members, the most important thing we can do is shore up the funding. It’s pay now or pay more later. And we can’t wait to do that. I’ve said that before when I was sitting out at that side of the table. And we always –we know that pay more later doesn’t make good fiscal sense, and it’s not good for our members and it’s not good for this Board.
So what happened? From the perspective of this badly captured board, undesirable things:
Gillihan is the face of Jerry Brown’s austerity perspective on employee benefits, with all the other members of the board heretofore on the other side. Bear in mind Jelincic does not thing benefits necessarily need to be reduced, but he made it clear he believes CalPERS meet its targets with its new allocation. So the board had its most expert member on finances is now saying that CalPERS needs to take the controversial step of telling its member bodies to pay more into the fund.
Jelincic, who is normally isolated, at least temporarily has an ally.
After Gillihan spoke, you can see that the union powers-that-be chimed in via public comment. They lambasted the new asset allocation return assumption that Jelincic’s comments had given them license to criticize.
In other words, what appears to have enraged the board and staff was not the non-disclosure, but Jelincic saying that CalPERS is not taking enough risk and will therefore fall short of its projections. As a result, the discussion with unions about the new asset allocation started off in public, in an uncontrolled way. Normally, the unions operate as insiders, so the typical way for bringing them up to date would be to bring these union leaders into the CEO’s office, where they would have been given refreshments and put through a dog-and-pony show. The union people could have vented their objections out of sight of the board, the press, and the public.
In other words, the real objection is that Jelincic “embarrassed the system”. And as we have discussed repeatedly, and CalPERS’ own new fiduciary counsel confirmed in fiduciary training before the campaign to neuter Jelincic was launched, the board has no duty to “the system,” meaning the employees. Both the staff and the board have a fiduciary duty to the beneficiaries. And how does putting their head in the sand about how realistic the return assumptions are help that?
Finally, it’s pretty poor, but entirely predictable, that Gillihan was nowhere to be found when several board members and the general counsel ganged up on Jelincic. If he wants a board that will be accountable and deal with unpleasant realities, he needs to stand up for Jelincic.