Last year’s credit crunch exposed cases in which investors’ agents placed collateral into risky pools of securities that had big losses. That spurred lawsuits by investors against agents. In some cases, the declines have been so severe that they undermined years of profits. The California Public Employees’ Retirement System reported last month a loss of $634 million for its securities-lending program in the year ended in March.
Wilshire Consulting said that figure could end up as high as $1 billion, wiping away much of the $1.4 billion that Calpers has earned from this since its inception more than 20 years ago.
“We are in the process of developing new policies to reduce risk and losses in the program’s reinvestment of collateral cash,” said Calpers spokesman Brad Pacheco.