Calpers Launches Financial Market Reform Initiative; Pension Fund Announces Principles and Action Plan to Prevent Future Enrons

Business Wire, Feb 21, 2002

Business Editors

SACRAMENTO, Calif.--(BUSINESS WIRE)--Feb. 21, 2002

The California Public Employees' Retirement System (CalPERS) Board of Administration today urged Congress, the Securities and Exchange Commission and others to adopt a package of financial market reform principles and announced its own action plan to promote market change.

"Our pensioners and pensioners everywhere depend heavily on ethical, transparent, and accountable financial markets for their retirement future," said Dr. William D. Crist, President of CalPERS Board of Administration. "For more than 10 years, CalPERS has made constructive attempts to improve corporate governance in the United States and abroad," Crist said. "Enron teaches us that in spite of these efforts, shareholder value can be destroyed by faulty corporate governance. It clearly is time for us to tighten the screws."

CalPERS asks the federal government and stock exchanges to take actions that will elevate the quality of company audit committee members; create clear and effective laws and regulations that will ensure company audits are truly independent; and create accounting standards that will put an end to "unintelligible or manipulative" financial statements that confuse or even deceive investors.

CalPERS also announced its intention to organize an effort of its own with other investors to identify and expose the myriad of potential conflicts of interest that can contribute to a company's downfall. These conflicts can emanate from investment bankers, equity analysts, rating agencies, lending institutions, outside attorneys and other consultants. A special commission will focus on how to ensure that all the "spokes" of the wheel involved in the company's governance are working to ensure transparency and accountability.

"Federal agencies, the investor community and corporations themselves can expect to hear from CalPERS over the coming months as we press for change," said Michael Flaherman, Chair of CalPERS Investment Committee. "We want reforms to be put into place soon so that all investors may be ensured of the integrity of our financial markets," he said. "We will continue to be aggressive on behalf of our 1.2 million members."

Other proactive efforts announced by CalPERS today include:

-- $62.2 million loss in Enron common stock ($27.4 million in lost book value
from the internally managed equity index portfolio and $34.8 million realized
losses by CalPERS active managers) representing 7/10 of 1 percent of CalPERS
public equity holdings; and

-- potential losses of $43 million in bond holdings, representing 1/10 of 1
percent of all bond holdings.

CalPERS total Enron stock and bond losses now stand at $105.2 million (1/10 of 1% of all assets in the System's investment portfolio).

The losses include the following:

-- $62.2 million loss in Enron common stock ($27.4 million in lost book value
from the internally managed equity index portfolio and $34.8 million realized
losses by CalPERS active managers) representing 7/10 of 1 percent of CalPERS
public equity holdings; and

-- potential losses of $43 million in bond holdings, representing 1/10 of 1
percent of all bond holdings.

In addition, a private equity investment in The New Power Company valued at $36.8 million, which was later converted to stock is also expected to be a loss.

These losses are offset by a $133 million gain from JEDI I, an Enron-CalPERS partnership, and the possibility of a future gain from the liquidation of JEDI II.

The CalPERS Financial Market Reform Initiative and Action Plan can be found on the System's corporate governance web site - the CalPERS Shareowner Forum - at www.calpers-governance.org. Further additions to the corporate governance market reform plan will be discussed in the coming months by the CalPERS Board. Results of those discussions and updates on the efforts announced today will be posted on this site.

CalPERS is the nation's largest public pension fund with assets totaling more than $151 billion. The System provides retirement and health benefits to more than 1.2 million State and local public employees and their families.