SEC Looks Into Adequacy of Calpers Risk Disclosures

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The Securities and Exchange Commission is investigating California's largest public pension fund. Authorities are looking into whether the state provided adequate disclosure prior to the financial crisis regarding how risky the investments were.


According to The New York Times, the California Public Employees Retirement System, or Calpers, lost one-fourth of its portfolio during the financial crisis. And regulators aren't sure the state gave investors a realistic idea of the amount of money it could take to replace losses.


Though inquiries into state accounting and disclosure practices haven't been the norm for the SEC in the past, the agency pursued its first enforcement action against a state last year when it accused New Jersey of "misleading bondholders about the condition of its pension fund." The settlement did not include a penalty, but the commission publicized the case.


Writers Louise Story and Mary Williams Walsh say the publicity indicates the agency is looking at public funds more closely. If officials are able to make the case in California, then other public funds know without a doubt that they will need to be more open with their investors about risks.


The trend toward increased transparency is not a new one. Soon after the economy bottomed out, the SEC adopted rules requiring public companies to disclose more about their board structures and their risk management strategies. The change was driven in large part by the belief that many boards of directors did not do their jobs in the months (years?) leading up to the financial crisis.


Similar beliefs seem to be driving the push for more transparency in state practices with public pension funds.