Former CalPers CEO Fred Buenrostro, one time investment chief at the US’s largest state pension fund, is admitting to a pay-for-play scandal and is implicating his one-time collaborator.

Fred Buenrostro calpers

Former Calpers CEO admits receiving payment for order flow

In recently released court documents, Buenrostro acknowledges he received what is known as “payment for order flow,” secret agreements to direct investments with favored companies and hedge funds.

Buenrostro claims he received $200,000 in cash, stuffed in a shoebox, from Alfred Villalobos that was one component of a longer relationship.  Villalobos is a third party marketer accused of facilitating payments so that the California state pension fund Buenrostro operated would invest in funds that Villalobos was paid to represent.

The payment scheme was a long and winding road for Buenrostro.  Villalobos is accused of paying for Buenrostro’s 2004 wedding at Villalobos’s Lake Tahoe home and later providing Buenrostro with casino chips as well as paying for first class travel.

CalPers history

Buenrostro started at the California Public Employees’ Retirement System (CalPers) in 2002. Calipers is the largest U.S. pension fund, which at the time it was managed by Buenrostro managed over $200 billion in assets, much of which was directed towards alternatives such as hedge funds, private placement, managed futures and real estate. Typical compensation for such placements typically run between 15 percent and 20 percent of the fees generated by the fund, although newer funds and funds who have difficulty raising assets are known to pay up to 50 percent of their fees to placement agents, while better known funds are said to have relatively low payout structures, sometimes near 5 percent of fees.

Strangely. the court documents didn’t specify the amount of the placements directed, the particular investments in question or if the investments in question are still operating in the Calipers portfolio today and should be ineligible for investment.  We may learn more if a trial of Villablobos takes place, as his attorney has said there is “no truth” to the allegations made by Buenrostro.

Buenrostro’s testimony directly contradicts this, including testimony he received a $50,000 check from Villalobos in exchange for Buenrostro not testifying against Villablobos, which is exactly what occurred last week.

Buenrostro could face upwards of 5 years in prison and a $250,000 fine.