The California Public Employees’ Retirement System, the nation’s largest pension, is winding down a European fund managed by former U.S. Securities and Exchange Commission Chairman Richard Breeden after it lost $71.5 million.
Calpers, with assets of $225.4 billion, is the third public pension to sever ties with a Breeden fund in the past year. In 2010, New York City’s civil employees’ pension voted to dissolve a partnership with Breeden that bought stakes in U.S. companies and pressed for management changes to boost stock prices. Maryland’s State Retirement and Pension System ended its relationship with Breeden about a year ago, Michael Golden, a spokesman for the fund, said today in an e-mail.
Breeden Capital Management, based in Greenwich, Connecticut, and Calpers agreed to close Breeden European Partners (California) LP by year-end, according to a document reviewing second-quarter performance that was included in the fund’s Investment Committee meeting agenda today. Calpers’s $300 million investment in Breeden’s European fund was valued at $228.5 million as of June 30, according to Calpers.
“Breeden Europe is in the process of executing an orderly liquidation of the portfolio and expects to exit all positions by year-end,” the Calpers document said. Calpers began investing in Breeden’s European fund in 2009.
Calpers remains an investor in Breeden’s U.S. fund, which has returned 9.61 percent this year through June 30, or 3.59 percentage points better than the Standard & Poor’s 500.
Breeden European Partners lost 16.8 percent for the year ending June 2010, according to Calpers. The fund has lost 2.59 percent this year through June 30, compared with a 9.59 percent gain for a benchmark European index, according to Calpers. Edward Storey, an analyst with Breeden European, left the fund during the second quarter, Calpers said.
Breeden, 61, was chairman of the SEC from 1989 to 1993 under President George H.W. Bush. Under his leadership, the commission expanded shareholder rights by requiring more disclosure in proxy statements of executive pay and making it easier for dissidents to nominate directors to corporate boards.
After the SEC, Breeden was chairman at accounting firm Coopers & Lybrand and was the court-appointed monitor for WorldCom Inc., the telecommunications company that imploded after an accounting scandal. He opened Breeden Capital Management in 2005.
Stung by Zale’s
Breeden’s transition to money management hasn’t been smooth. His U.S. corporate governance fund, which targets companies with sales ranging from $500 million to $10 billion, has lost 0.9 percent since its inception in June 2006, according to Calpers records. The fund’s objective is to outperform the S&P 500 by 10 percent over the long term, the Calpers documents said.
Breeden’s U.S. fund was stung by investments in Zale Corp. (ZLC), the Irving, Texas-based jeweler. Zale’s annual revenue declined 25 percent to $1.62 billion for the year ending July 2010, from $2.15 billion in the year ending July 2007, before the recession, according to company filings.
New York City
The jeweler’s fortunes have rebounded over the last year as revenue increased 7.8 percent to $1.74 billion because of higher same-store sales. Zale’s net loss for the year ended July 31 was $112.3 million, or $3.50 per share. Breeden was Zale’s biggest shareholder as of June 30, holding about 6 million shares, or 18.5 percent.
New York City’s Employees Retirement System voted to terminate its investment in Breeden’s U.S. fund in May 2010. The value of the city’s $136.5 million investment was $110.57 million as of March 31, according to the latest data available from the New York City comptroller’s website.
Breeden’s European Fund used an investment process similar to that of its U.S. counterpart, buying shares of poorly performing or undervalued companies and then identifying strategies to boost return to shareholders. Breeden European had 13 investments as of the second quarter, according to Calpers, which didn’t disclose the companies.
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