Ex-CEO at CalPERS accepted favor from placement firm boss

Andrew McIntosh and Dale Kasler

Nov. 7, 2009 (McClatchy-Tribune Regional News delivered by Newstex) -- STATELINE, Nev. -- When Fred Buenrostro, then the chief executive of California's giant public employees' pension fund, was looking for a place to get married, he accepted an offer to hold the wedding at the home of good friend and former CalPERS board member Alfred J. Villalobos.

Villalobos hosted the event at his Lake Tahoe mansion on Nov. 6, 2004. "It's what a friend would do for a friend," he later told The Bee.

Villalobos was more than just an ordinary friend. He stood to gain millions by introducing clients to officials at the California Public Employees' Retirement System.

Villalobos recently emerged as a central figure in an ongoing investigation of placement agents -- brokers who help private-equity firms obtain big investment dollars from CalPERS and other public pension funds.

Two weeks ago, CalPERS hired Washington law firm Steptoe and Johnson to conduct a "special review" of Villalobos' activities, revealing that his placement-agent firm, Arvco Financial Ventures, earned $50 million in commissions helping his clients secure investments from the pension fund since 2006.

Buenrostro left his job as CalPERS chief executive officer in June 2008 and now works for Villalobos' firm as a broker.

In a recent interview, Buenrostro acknowledged his close relationship with Villalobos but said their ties didn't influence CalPERS' investments.

CalPERS has said its investment decisions aren't swayed by placement agents. When asked if CalPERS knew that Villalobos hosted Buenrostro's wedding, or whether that posed a conflict of interest, spokeswoman Pat Macht said in an e-mail that "relationships related to placement agents are part of the full examination being conducted by Steptoe and Johnson."

On his state conflict-of-interest filings for 2004, Buenrostro didn't report receiving any gifts from Villalobos or Arvco.

In an interview last week, Buenrostro said Villalobos paid for the wedding, and then he subsequently reimbursed him -- without ever seeing the actual bills. He declined to say how much he paid.

In any event, Buenrostro said he broke no state law.

"Entertainment in AJ's home is not a reportable expense or a gift," he said. "AJ was kind enough to lend me his home for a small, private event where I invited my family. I appreciated the offer of using his personal home."

Villalobos, who served with Buenrostro on the CalPERS board from 1993 to 1995, hosted the wedding for Buenrostro and Melissa K. Nevis, according to Douglas County, Nev., marriage documents. Villalobos signed the marriage certificate as an official witness.

During the reception at Villalobos' 9,000-square-foot home, Buenrostro thanked Villalobos for hosting the affair, according to someone familiar with the event.

Phone messages to Villalobos went unreturned. Two Bee reporters who visited Arvco's Stateline headquarters on Highway 50 about a half-mile from his mansion were told by a secretary that he was absent.

Roman Porter, executive director of the state Fair Political Practices Commission, said in-home hospitality provided to a state official, including a dinner, beverages and occasional lodging, isn't subject to reporting requirements and gift limits.

But Porter said the regulation intends only to exempt an occasional dinner party or overnight stay, not a businessman lending his mansion to a senior state official to host a private wedding and reception.

"The FPPC may have to look at this regulation to ensure that it properly describes the exemption," Porter added. He said he found no record of Buenrostro or Villalobos seeking ethics advice on the matter.

In 2004, a senior state official like Buenrostro could accept up to $340 a year in gifts of any kind from a single source, Porter added.

Buenrostro said he and Villalobos have been longtime friends but their relationship didn't give Arvco or its clients the inside track on securing investments from CalPERS.

He said he didn't invite anyone from CalPERS to the wedding.

While the CalPERS investigation will go beyond Villalobos' role, his firm has been one of the most successful at obtaining business from the $199 billion pension fund. Arvco's clients have obtained investment commitments totalling approximately $3 billion since 2006.

Documents released by CalPERS show Buenrostro was aware of most of the fee arrangements between Arvco and its clients, which include giant New York private equity firm Apollo Management. In an earlier interview, Buenrostro said the fees were common knowledge at CalPERS.

The CalPERS probe is the latest twist in a multistate investigation that erupted when New York Attorney General Andrew Cuomo charged two political operatives in an alleged scheme to sell access to the New York public pension fund. California Attorney General Jerry Brown and the Securities and Exchange Commission are also investigating placement agents.

In a statement read to reporters the day CalPERS announced its probe, Villalobos downplayed his influence: "Arvco does not make recommendations to CalPERS or any other investors. We introduce and present investment opportunities to them."

Buenrostro said investment decisions "were solely the purview of the investment officers. My only act was to listen to (fund managers), answer questions and introduce them to the investment staff. That's the CEO's job."

While he was CEO, Buenrostro accepted a $100 concert ticket and a $155 Kings ticket from Arvco employees, according to state records.

Separately, The Bee has reported that campaign contributions by several Arvco employees, though not Villalobos, to CalPERS board member Charles Valdes in 2005 are under investigation by the Fair Political Practices Commission. Auditors found the donations exceeded state limits.

Villalobos first approached CalPERS as a placement agent in 1997, two years after leaving the pension fund's board, when he succeeded in winning a $100 million deal for Texas investment firm Hicks Muse Tate and Furst. Buenrostro was on the CalPERS board at the time but didn't become CEO until five years later.

The board approved the investment, making the rare decision to ignore the recommendation of CalPERS staff. Villalobos' activities were legal because he was more than one year removed from his Cal-PERS service.

Arvco now bills itself as "one of the five major private capital placement agents in the world."

Buenrostro said Villalobos offered his home for the wedding because the two had already been friends for at least 12 years.

Villalobos' home sits in a wooded residential development on a small hilltop overlooking the lake. It has an indoor pool.

The wedding featured a catered reception, disc jockey and cake, according to information provided to The Bee.

Buenrostro wouldn't say how much the wedding cost. At one point in the interview, he said he repaid Villalobos "almost all the expenses." Later in the interview, he said, "I think I paid for all of the expenses immediately after the wedding."

He added, "I think I reimbursed AJ for the expenses he may have incurred. I tried to be very careful about reimbursing AJ for the expenses incurred."

Yet Buenrostro said he never saw individual bills or an itemized list of costs. Instead, he relied on Villalobos to verbally give him a tally.

"He told me, 'You owe me so much,' I think," Buenrostro said. "I reimbursed him for it. It's been a long time, as I recall. Approximately five years ago." He wouldn't say if the reimbursement was made in cash or check.

He added that he didn't think Villalobos gave him and his wife a wedding gift.

Buenrostro, who joined Arvco in August 2009, said he announced his marriage to his executive CalPERS co-workers and introduced his new wife to them at an off-site working dinner shortly after the wedding.

He and Nevis separated in 2006 and divorced in 2008, court records show.

Call Andrew McIntosh, Bee Capitol Bureau, (916) 321-1215. Call The Bee's Dale Kasler at (916) 321-1066.

Newstex ID: KRTB-0178-39537285