by Dr. Mark H. Shapiro
Commentary of the Day - July 18, 2000: Follow the Money - The University of California Pension Fund Money, That Is!
In an excellent piece of investigative reporting, Lance Williams of The San Francisco Examiner has uncovered a most interesting money trail leading from the $59 billion (yes folks, that's billion with a "b") University of California pension fund to some well-heeled Republican financiers and political operatives.
The University of California pension fund, which is managed by university treasurer Patricia A. Small, has achieved an average annual return of 17% over the past 20 years. This is excellent performance by any standard for this type of fund, which must be managed conservatively to protect the retirement incomes of its beneficiaries. In fact, the fund has generated such large surpluses that University of California employees have not had to contribute to their pensions for the past decade.
Nevertheless, U.C. regent Gerald Parsky, who heads George W. Bush's presidential campaign here in California, has mounted a campaign to oust treasurer Small and to overhaul the pension fund's investment strategies. Now the Irascible Professor has to wonder why it's necessary to fix something that does not appear to be broken.
The answer it seems is that this is a good way to steer business to a major donor to George Dubya's presidential campaign. Parsky apparently urged the U.C. Board of Regents to appoint a special commission to oversee the treasurer's office. This commission, which for some reason was exempt from California open meeting laws, included Parsky, San Francisco financier Howard Leach, and former Orange County home loan executive Judith Hopkinson. (According to an April 18, 1999 Los Angeles Times article, Ms. Hopkinson who is one of Governor Davis's recent appointments to the Board of Regents, contributed $50,000 to Davis's campaign.) The commission recommended sweeping changes in the way the pension fund was managed.
The Regents hired Wilshire Associates, a Los Angeles investment firm headed by Dennis Tito - who has donated $80,000 to a "Republican Party soft money committee that is raising money in support of Bush's election" according to the Examiner article, to effect the overhaul of the pension fund's asset mix. This was initiated by a $97,000 consulting contract awarded to Wilshire Associates last year that presumably was based on a competitive bid. However, the Examiner reports that in July of 1999 Parsky's commission awarded a $250,000 no-bid contract to Wilshire Associates to analyze the pension fund portfolio in detail, and as recently as May 18th of this year the Regents awarded a $350,000 no-bid contract to Wilshire to actually carry out the overhaul of the pension fund investment mix.
Dennis Tito denies that the $80,000 donation was made to influence the awarding of $600,000 in no-bid contracts to his firm. He claims instead that he made the donation in response to a request from Bradford Freeman who heads fundraising for Bush's California campaign. This is important because it would be illegal under California law for Parsky to solicit a campaign contribution as quid pro quo for those no-bid contracts. However, an astute observer might guess that Bush's California campaign chairman (Parsky) does speak to Bush's chief California fundraiser (Freedman) on occasion.
Tito is an interesting character. The 59 year-old former aerospace scientist has said that he would pay $20 million to spend a week on the Mir space station. He has been a major fund raiser for Los Angeles mayor Richard Riordan and for former Governor Pete Wilson. Parsky and his firm Aurora Capital Partners also has made major donations to Republican causes. Since 1992 he and his firm, according to the Examiner story, have donated more than $500,000 to the party. In addition, Parsky had donated $75,000 to Pete Wilson's campaign before being appointed to the U.C. Board of Regents by Wilson.
The IP notes that Parsky was not questioned in detail about the earlier no-bid contract awarded to Wilshire by other members of the Board of Regents. However, when the $350,000 no-bid contract was awarded concerns were raised both by Lt. Gov. Cruz Bustamante who is a Democrat, and by Ward Connerly who is a conservative Sacramento businessman. Both urged that the contract be put out to bid.
Now Wilshire Associates may well do a fine job in rebalancing the U.C. pension fund portfolio, although one has to wonder why this is necessary given fine performance achieved by the fund over the past 20 years. However, the close association between Wilshire principals, regent Parsky, and contributions to the Bush campaign in California raises serious issues about how Wilshire was selected for this task. The fact that both the liberal regent Bustamante and the conservative regent Connerly were concerned about the "appearance issue" is telling.
The IP suggests that now is the time for U.C. employees to start taking a close interest in how their pension fund is being run.
© 2000 Dr. Mark H. Shapiro - All rights reserved.