Calpers' Dear Says Finance Overhaul Needed to Restore Investor Confidence

Legislation being debated in the U.S. Congress to overhaul Wall Street regulation is essential to restoring investor confidence in capital markets, said the top investment officer of the largest U.S. public pension fund.

The proposal would redesign rules governing the financial services industry in response to the worst economic crisis since the Great Depression. The measure is aimed at averting a repeat of the $700 billion in taxpayer-funded aid to firms including Citigroup Inc. and American International Group Inc.

“The fundamentally important part of regulatory reform is that it gives investors confidence in capital markets,” Joe Dear, the chief investment officer of the California Public Employees Retirement System, said yesterday afternoon at the Milken Institute Global Conference in Los Angeles. “We can’t afford to again go through the crisis we just went through. For pension funds and for society, the remedial steps are too huge.”

Calpers’ investments produced a loss of 23 percent in the fiscal year that ended in June, erasing six years of gains. The fund’s value plummeted $61 billion from Sept. 15, 2008, the day Lehman Brothers Holdings Inc. filed for bankruptcy, to Jan. 31, 2009. The fund has rebounded to $213 billion from about $180 billion in June.

The pension fund, which reached an all-time high of $260 billion in October 2007, provides benefits to 1.6 million current and retired public workers in California, the most- populous U.S. state.

Blocked in Senate

Republicans in the U.S. Senate yesterday blocked Democrats from advancing the financial legislation toward a full debate. The Republicans say the Democratic measure would set up a permanent bailout of Wall Street banks and create new bureaucracies. Democrats say the legislation would save the government from having to step in with taxpayer money to support financial firms whose collapse would hurt the economy.

The bill would introduce steps such as establishing a consumer protection agency, strengthening oversight of derivatives and setting up a council of regulators to monitor the financial system for systemic risk.

“There are cases when the private markets do not allocate risk, do not self-manage risk in a way that protects the society from unacceptably high losses,” Dear said.

To contact the reporter on this story: Michael B. Marois in Sacramento at mmarois@bloomberg.net

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