CalPERS Terminates Contracts with Putnam Investments; Pension fund asks its money managers to adopt stricter codes of ethics.

Business Editors

SAN DIEGO--(BUSINESS WIRE)--Nov. 17, 2003

The Board of Administration of the California Public Employees' Retirement System (CalPERS) voted today to terminate its $1.2 billion international and U.S. equity money management contracts with Putnam Investments.

CalPERS also announced that it has launched an independent review of all its money managers in an effort to ensure the safety of its members' assets.

"We came to this decision today because our review clearly shows that Putnam's former senior management breached their general fiduciary duty by failing to act when their compliance office first reported improper trading activities," said Sean Harrigan, President of CalPERS Board of Administration. "A second factor in our decision is our concern about whether Putnam, sadly enough, will continue in the short term to be distracted away from effectively managing our business."

Putnam has managed a $609 million active international equity portfolio for CalPERS since May 2001, and a $608 million active U.S. domestic equity growth portfolio since May 1998.

In a related matter, CalPERS Chief Investment Officer Mark Anson said he sent a letter to all CalPERS external money managers calling on them to disclose their code of ethics and internal compliance procedures for portfolio management and trading, including:

-- If the firm is part of any SEC or law enforcement agency 

investigation;

-- If any portfolio managers have engaged in short-term trading

in the firm's own mutual funds, who they are and what action

is being taken; and

-- If any portfolio managers are managing hedge funds 

simultaneously with long-only portfolios and what compliance

procedures are in place to prevent detrimental behavior to the

long-only accounts.

Anson also told CalPERS money managers that he would be recommending that the System's Board adopt an external code of ethics and require each manager adopt them if they want to keep their contracts with CalPERS.

In a letter to 66 equity, fixed income, and corporate governance managers and advisors that invest more than $45 billion for CalPERS, Anson wrote that CalPERS Board has become concerned about the recent investigations being conducted by various regulatory and law enforcement agencies into the behavior of mutual fund firms and their portfolio managers who engage in short term trading that disadvantage long term investors.

Rob Feckner, Chair of CalPERS Investment Committee said the board recognizes the firm is working on its internal controls and is trying to strengthen its top management. "Nevertheless, these circumstances warrant termination. We hope that the Putnam disaster will serve as a catalyst for major improvements in ethical behavior, internal controls and corporate governance not only at Putnam but throughout the industry."

CalPERS expects to have a code of ethics in place for all external managers in the next few months.

CalPERS is the nation's largest public pension fund with assets of $154 billion. The System provides retirement and health benefits to more than 1.4 million State and local public employees and their families. For more information on CalPERS, visit www.calpers.ca.gov.