CalPERS Under Fire Over Portfolio Risk

Jan 13 2011 | 1:05pm ET

One of the world’s largest hedge fund investors may be in some hot water over those investments.

The Securities and Exchange Commission is looking into whether the California Public Employees’ Retirement System had misled investors about the risks in its massive portfolio when it backed a state bond sale, The New York Times reports.

It is not clear that CalPERS’ hedge fund or private equity portfolios are a target of the SEC probe. But the asset classes are a sizeable chunk of the pension’s $220 billion portfolio and contributed to its 25% loss during the financial crisis. That loss has saddled California with billions in replacement costs. The SEC is looking into whether the state should have disclosed that possibility in its bond prospectus.

The CalPERS investigation could lead to the second SEC enforcement action against a state; last year, the agency sued New Jersey for allegedly misleading bond investors about its pension funds’ financial state.

CalPERS said the SEC has only contacted it about its use of placement agents and not about the bond issue.

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