The huge $300 billion California state pension fund (CalPERS) this week announced its intention to withdraw from using hedge funds (CalPERS news release).
RAID wrote to CalPERS back in July 2013, again in November 2013 and most recently in September 2014, asking the fund about its investments with hedge fund Och-Ziff, in the light of serious questions concerning the use of Och-Ziff money to back a mining deal in Zimbabwe that ultimately funded Mugabe’s violent subversion of 2008 elections (more details here). CalPERS applies Global Principles to its investments, which include provisions on the elimination of human rights violations.
RAID began its campaign back in May 2013 calling for an investigation, under US sanctions, of Och-Ziff’s role in the Zimbabwean transaction. The hedge fund itself disclosed in March 2014 (available here) that certain investments in Africa had been under investigation since 2011 by the Securities and Exchange Commission and Department of Justice (under the Foreign Corrupt Practices Act). RAID published a follow-up report in April 2014, highlighting transactions by Och-Ziff and its partners not only in Zimbabwe, but also in the Democratic Republic of Congo and Guinea. See here for press follow-up.
RAID called upon CalPERS to review its investments with Och-Ziff and to press the hedge fund for clarification about its African investments. CalPERS has announced its planned withdrawal not only from Och-Ziff, but from all hedge funds in its portfolio, and cites ‘complexity and costs’ as the reasons behind its divestment.
Writing prior to CalPERS’s official announcement, CNBC, commenting here on the ‘bad press’ surrounding Och-Ziff and citing the RAID report, quotes an adviser to institutional investors: ‘They hire a firm like Och-Ziff to be the ‘sleep at night’ fund….When the ballast underperforms and gives you headline risk, it begs the question as to why it’s there in the first place.’ Morningstar analyst Stephen Ellis believes that clients can be ‘rightly concerned about Och-Ziff’s investment processes and may feel a bit more leery about putting more assets with Och-Ziff’. Could it be that Och-Ziff’s private equity investments in Africa are part of the complexity to which CalPERS alludes?
Given that CalPERS is viewed as a bellwether of investor sentiment, the big question is the extent to which other pension funds – including Massachusetts, New Jersey, Florida, Texas, Missouri, Sacramento, Utah and even Transport for London in the UK – will follow suit? RAID wrote to all these pension funds in 2013, prior to the announcement of the federal investigations into Och-Ziff and the press coverage that has ensued, but, unlike CalPERS, none have replied.
RAID has put all the questions raised in its public reports to Och-Ziff directly, but has not received a response.