Explaining Southern California's economy

California tackles the looming retirement crisis — but will it be enough?

CA Governor Jerry Brown Holds News Conference On Pension Reform

Kevork Djansezian/Getty Images

California Gov. Jerry Brown discusses pension reform during a news conference in Los Angeles. The governor just signed a bill that would create a retirement plan for millions of workers in the state who don't currently have access to one.

There's no debate that Americans aren't saving enough for retirement. The average nest egg for 65-year-olds is just over $65,000. Saving enough for retirement has become more difficult as old-school pension plans have given way to 401(k)-type plans that shift the burden of risk to employees. But California has come up with a way to address this problem.

For 6.3 million Californians.

Gov. Brown just signed into law SB 1234, the "California Secure Choice Retirement Savings Trust." The bill was co-sponsored by state Sen. Kevin de Léon (D-Los Angeles) and Senate President Pro Tem Darrell Steinberg. It creates a private-sector retirement plan for the aforementioned 6.3 million private-sector workers who currently don't have access to a retirement plan through their jobs.

"I'm ecstatic," de Léon said. "Much of the middle class is shut out of retirement security, and the signing of this bill shows that retirement security isn't just for the elite."

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CalPERS just struck fear in the hearts of venture capitalists everywhere

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The California Public Employees' Retirement System in Sacramento, California. The fund may severely cut back its venture capital investments.

CalPERS, the gigantic California public workers' pension fund, has announced that it's going to to review the venture-capital component of alternative investments in its $230-billion overall portfolio. This follows on the heels of a much-discussed paper put out by the Kauffman Foundation earlier this year, in which the organization — which is devoted to promoting entrepreneurship — revealed that its VC investments has seriously underperformed in the past decade.

I wrote a feature about this in May. In January, CalPERS announced that it made only a 1.1-percent return on its investments, missing its target return of 7.75 percent by a wide margin. One of the reasons it in alternative asset classes like VC in the first place is that it can't meet its return objectives otherwise.

The fundraising aspect of being a VC has gotten pretty challenging. Some VCs seem to be adapting to this "new normal," while others appear content to live at the top of the pile and uses their brand-name status to vacuum up most of the available money. But they all rely on large funds like CalPERS to fuel their efforts to find the next Google or Facebook.

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Bankrupt Stockton's bond issuers and CalPERS are already bickering

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A sign stands in front of California Public Employees' Retirement System building in Sacramento. The fund has shown that it won't give an inch in bankruptcy.

One of the biggest questions to be answered by the bankruptcies of two large California cities, Stockton and San Bernardino, is "How hard will CalPERS fight?" CalPERS is the gigantic pension fund for California's public workers, managing more than $230 billion. And it's now being accused by a Bermuda-based bond issuer of getting favorable treatment in Stockton's Chapter 9 proceeding.

This is from Reuters:

A Stockton proposal to creditors in May, which was made before Chapter 9 proceedings began, showed the city on the far outskirts of the San Francisco Bay Area was ready to fully pay pension fund payments but largely abandon payments on $121 million of pension obligation bonds backed by Assured Guaranty.

Assured calculated that the loss on bond principal would be 83 percent. That amounts to $100 million, which Assured would have to cover.

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A Q&A on the San Bernardino bankruptcy

berdoo bankrupt

Steven Cuevas / KPCC

San Bernardino city council caps a 3-hour budget hearing by grimly approving authorization for Chapter 9 bankruptcy protection. What would bankruptcy mean for the city of more than 200,000?

Last night, the San Bernardino City Council voted to prepare for a bankruptcy filing. If the city of 211,000 does enter Chapter 9, it would follow Stockton and Mammoth Lakes, both of which have turned over their finances to the courts in recent weeks after a new state-mandated mediation process failed to resolve heavy debt burdens and, in Mammoth Lakes' case, a legal judgment that was more than double the city's budget. San Bernardino would also be the second U.S. city of more than 200,000 to enter bankruptcy.

So what would bankruptcy mean for San Bernardino? I've created a Q&A that I'll follow up with some more in-depth reporting on San Bernardino's specific problems.

Q: Can San Bernardino declare bankruptcy right away?

A: It's unclear. A new California law requires municipalities to declare a fiscal emergency — San Bernardino says that it can't make its city payroll, which definitely qualifies — and enter a mediation period before officially filing for Chapter 9. In Stockton's case, this consumed about 90 days but was ultimately unsuccessful. In a July 26 analysis of the city's dire finances, the mediation process was referenced.

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Good money after bad: CalPERS and the crisis in venture capital

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The California Public Employees' Retirement System (CalPERS) building in Sacramento. The fund has billions invested in venture capital and other alternative asset classes.

VC-Returns-Kauffman

The performance of VC has been poor sine the the mid-1990s.

Smaller-VC-Kauffman

In VC, smaller funds outperform larger ones.

VC-Big-Kauffman

Big VC doesn't meet outsized return expectations.

N-J-Curve-Kauffman

The "N-curve" is in blue and red. The "J-curve" is in green. In VC, you expect J, but you actually get N, with most returns coming early, rather than late.

Institutionalization-VC-Kauffman

A healthy VC ecosystem? Not really. Most of the money is going to fewer funds.

VC-Fees-Kauffman

Are VCs really all about raising money and charging fees? The Kauffman Foundation blames itself for creating this compensation structure.


Pretend, for a moment, that you’re a computer science student at Stanford University. Chances are good that you’ve thought about taking your degree — or even not waiting to get your degree — and starting a technology company.

It’s the new American Dream. It attracts the most talented international students to our major research universities. It’s made the likes of Jerry Yang, Sergey Brin, Larry Page and, more recently, Facebook’s Mark Zuckerberg and Instagram’s Kevin Systrom (both under 30) multi-millionaires if not multi-billionaires nearly overnight.

Technology. The Internet. Mobile. Innovation. Disruption. Entrepreneurship.

These are the things that make America great in the early 21st century. Many of these new businesses are located in California. And they all have one thing in common: They live and die based on the investment decisions of venture capitalists, arguably the most important reallocators of wealth in the global economy.

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