Who I am
Past Experience with CalPERS
My interest in CalPERS dates back to 1994. Back then, I was a young BART employee, barely out of school. I heard about a CalPERS board election and decided to run. I defeated the incumbent and joined the board on my 30th birthday.
Those were CalPERS' "glory days." The retirement system became dramatically over-funded during my time on the board, and CalPERS was widely recognized as a world leader on investment and retirement issues. I served for eight years on the board and chaired the investment committee for my last three years there.
Investment Business Career
I left CalPERS at the beginning of 2003, simultaneously quit my job at BART, and embarked on a career in the investment business. I joined a firm called New Mountain Capital, where I was affiliated for more than a decade. In my role, I formed partnerships with pension funds all over the world, to which they contributed billions of dollars. I was also a member of the firm's investment committee.
At New Mountain, I worked closely with two healthcare companies owned by New Mountain funds and sat on their boards of directors. One, which was publicly-traded (Nasdaq:NMHC), provided pharmacy benefit services, which CalPERS also provides. The other (Ikaria, Inc.) was a large drug/medical device manufacturer. It has saved thousands of newborn lives with a technology that won the Nobel Prize in medicine.
At the beginning of 2014, I accepted a fellowship from Harvard University to study financial corruption. The problem of corruption had been of great interest to me throughout my career working in government and finance. Particularly after reading about how fraud contributed to the 2008 financial crisis, I was eager to use Harvard's resources to fight corruption on Wall Street.
In mid-2015, at the conclusion of my Harvard fellowship, I moved to UC Berkeley and have continued my work on financial corruption there.
You can read about my achievements in fighting financial corruption, which are significant, here.
In May of this year, I celebrated my 25th wedding anniversary. My wife, Valerie Flaherman, M.D., is a pediatrician and professor at UCSF. She is one of the world's leading breastfeeding researchers. We have four children and reside in San Francisco. I recently retired from CalPERS.
Retirement in crisis
You've seen the headlines about California's pension funding crisis. On average, CalPERS has just 62 percent of the assets it needs to fund pension benefits. In FY2016, CalPERS investments returned just 0.61 percent, when the fund requires annual returns of 7.5 percent to fully pay benefits. Just a few months ago, CalPERS cut benefits to already-retired participants for the first time.
Nobody can guarantee successful investment returns, but the CalPERS board and senior staff have struggled to manage the complexity of their investments. For example, a 2015 Fortune Magazine story raised questions about whether CalPERS even knew about various fees that investment firms receive from the pension fund. A few months earlier, a New York Times article exposed billions of dollars in hidden fees paid to outside money managers that CalPERS acknowledged not tracking.
Experts have commented on problem of pension funds not fully understanding the investments they make. For example, Curtis Loftis, the State Treasurer of South Carolina (and a member of that state's retirement board), has noted:
"Public plans ought not make investments they don't understand. The senior staff at CalPERS, as well as staff at many other plans, do not understand private equity and therefore should look to other asset classes to satisfy their investment needs."
By contrast, I have the needed experience and determination to lead the organization. I worked in the investment business for more than ten years in senior roles. Before then, I was a member of the CalPERS Board representing government employees. Most recently, I have served in academia at Harvard and UC Berkeley, where I have contributed significantly to protecting pension beneficiaries worldwide from investment scams.
Achievements Fighting corruption
In my academic role, first at Harvard, then at UC Berkeley, I discovered that various investment firms working for CalPERS received kickbacks from service providers like law firms. I met with CalPERS staff and board members, as discussed in the highlighted text from the article, and urged them to challenge the practice. Ultimately, the SEC stepped in and took enforcement action against investment firms engaged in the practice.
Revealing hidden fees
I also discovered that CalPERS failed to report or even track hundreds of millions of dollars in annual compensation it pays to investment firms. I wrote to the entire board urging them to demand transparency into this very large "off-the-books" expenditure. Once I pointed out the problem publicly, articles (like the one on the right) started criticizing CalPERS for "a massive breakdown in financial controls." Fortunately, this caused CalPERS to start assembling the data. Almost half a year later, the organization announced what it had paid, a total of more than $3 billion that had previously gone unreported.
pressing for reform
As you can see from the article to the right, my work has led the New York times to recognize me me as an "expert" on investment fees "tucked in footnotes."
Numerous pension funds around the world also value my work. I have advised many of the largest U.S. and European pension funds on how to avoid hidden fees, kickbacks, and other investment scams. At their invitation, I have also presented my findings to many of the largest U.S. university endowments.
I recently presented my work on hidden investment fees to the American Bar Association and have led webinars with hundreds of institutional investor participants eager to learn how not to get ripped off.
My efforts to expose hidden fees eventually caused state treasurer John Chiang to go looking for structural solutions to the problem.
Through intermediaries, I proposed to Chiang a change to California law requiring that investment firms disclose the problematic hidden fees to California public pension funds. He immediately embraced the idea, and in response to his staff's request, I authored the first draft of the legislation.
As the bill progressed through the legislature, repeated efforts were made to undermine it, and one such effort succeeded. In a shocking development, the Los Angeles Times reported that CalPERS itself had worked to weaken the requirement that investment managers fully disclose the hidden fees to CalPERS.
Nevertheless, the bill did become law. However, the efforts of CalPERS itself to weaken the bill's transparency requirements played a large role in spurring my decision to run for the CalPERS Board.