The California Public Employees Retirement System and its sister funds in other states have changed the way we talk about capital investment, giving rise to notions of benevolent "pension fund capitalism," and socially conscious "shareholder activism." Both terms are based on the assumption that widespread ownership of capital via pension funds has produced a more democratic and humane system in which capital grows for the sake of the masses, precisely because risks and rewards are so widespread.
And yet the entire crisis in Greece proves otherwise. As Europe rocks back and forth on the brink of a massive debt crisis centered on the Greek economy, CalPERS's exposure to the crisis reveals a deeply troubling interest in imposing further austerity measures on the Greek middle class in order to secure higher investment returns.
CalPERS's primary role in Greece is through its financial partner Och-Ziff Capital Management Group. CalPERS has invested at least a half-billion dollars with the New York-based hedge fund. Och-Ziff is one of a selected group of hedge funds and private equity firms in which CalPERS entrusted large pools of money because these Wall Street insiders promise rates of return far exceeding index averages.
But throughout the Greek debt crisis, Och-Ziff and four other hedge funds with large Greek debt holdings have pressured European politicians to impose harsher terms on the people of Greece in order to guarantee higher repayments on government treasury bonds. Hedge funds like Och-Ziff have also been considering a lawsuit against the Greek government to block write-downs of Greek debt. In other words, CalPERS, a system set up for the benefit of California's public employees, has a vested interest in backing an attack against public employees in Greece.
And yet CalPERS seems unconcerned. CalPERS spokesman Wayne Davis said Och-Ziff's position on Greece's debt crisis is the hedge fund's business. "As far as our relationship with private equity partners," Davis explained, "essentially we delegate to the partner the authority to make the investments under the approach that has been determined by the partner. You would have to call them to discuss their investments in Greece." In other words, CalPERS's policy on hedge funds is hands off — even if that policy harms public employees elsewhere.
In response to bad press stemming from their involvement in Europe's debt talks, Och-Ziff recently issued a press statement claiming that it has reduced its exposure to Greek debt securities. The company, however, did not offer specific numbers or documentation proving its assertion.
The Greek people, meanwhile, are facing some of the most severe austerity measures anywhere in the world today because of ballooning debt on an estimated $260 billion in government bonds held by private banks and hedge funds. Greece's economy has struggled since 2007, making it impossible for the government, under its current tax system, to raise enough revenues to meet interest payments. Default is a real possibility. EU leaders, particularly France and Germany, are calling on Greek leaders to lay off tens of thousands of government workers, roll back wages by as much as 20 percent, and, most ironically, slash public-employee pensions. This is on top of existing austerity measures, including tax hikes on working and middle-class families. It's all in order to pay the country's creditors, most immediately the IMF and European Central Bank, but ultimately many large private banks and hedge funds that spent the 2000s gobbling up Greek government bonds and other securities. Global finance capital is demanding its pound of flesh.
In addition to its substantial investment in Och-Ziff, CalPERS has a large stake in the debts of other European nations and in currency markets, especially bets on the value of the Euro. In case of a Greek default, Europe's entire economy could sink into a deep depression, bringing the US along with it. Funds like CalPERS, which invest huge sums of money in European corporate equities, European sovereign debt, and currencies, would experience enormous immediate losses. This would be in addition to losses sustained by hedge funds like Och-Ziff and other investment vehicles with very large direct holdings in Greek debt of which CalPERS is a party.
CalPERS's massive investments in San Francisco's Blum Capital Partners provides yet another window into the pension fund's exposure to the Greek crisis. Blum Capital is the private equity firm managed by Richard Blum, husband of US Senator Dianne Feinstein. CalPERS has parked half a billion dollars with Blum specifically to invest in global real estate markets.
CBRE, a global real estate investment company owned principally by Blum, has lost huge sums of money because of its real estate business in Greece and the rest of Europe. According to CalPERS's most recent report: "because [CBRE] derives a large amount of its commercial real estate services revenue from outside of the U.S., CBRE's shares sold off sharply in August and September after concerns about Greece's sovereign debt condition spiked and growth forecast in Europe was slashed."
It's not clear if Blum Capital Partners has muscled in on Greece's debt talks, as Och-Ziff and other hedge funds and private equity groups reportedly have. CalPERS, however, may be reassessing its relationship with Blum Capital because of CBRE's extremely poor performance stemming from exposure to Greece and European real estate markets, according to the fund's third quarter report.
There's still another angle to CalPERS's role in the Greek crisis. According to figures taken from the fund's 2010 Annual Investment Report (the most recent available), CalPERS has invested more than $245 million in Greek corporations. The largest such holdings were with the National Bank of Greece ($67 million), Alpha Bank ($35 million), EFG Eurobank ($27 million), Hellenic Telecommunications ($25 million), and Piraeus Bank ($21 million). CalPERS was exposed to at least 26 other Greek corporations through direct equity investments as of 2010.
Many of the Greek companies CalPERS has a stake in have seen their share values collapse, causing CalPERS to lose at least $153 million as of June 2010, again according to figures compiled from the fund's last available investment report. An analysis of the companies' share prices as of February 2012 reveals even further erosion of values. Whereas in June 2010 shares of the National Bank of Greece were trading at 7.56 €, by February 7, 2012, shares closed at 2.96 €. Shares of EFG Eurobank have lost 74 percent of their value since June 2010. Share values of Alapis Holding, a Greek pharmaceutical manufacturer in which CalPERS had invested more than $6 million, collapsed by 99 percent during the past eighteen months. CalPERS's largest Greek corporate investment, the National Bank of Greece, is itself a major holder of the nation's sovereign debt. Much of the National Bank's losses have recently resulted from the company writing down its holdings on Greek government bonds.
Although these investments amount to about one-tenth of one percent of CalPERS's total assets, they serve as a canary in the coal-mine: As Greek corporate share values collapse, so do prospects for Europe's entire economy, of which CalPERS is systematically exposed to and dependent on for growth. And it's from the bigger players in the European economy that greater pressure is building to impose harsher terms on the people of Greece.