CalPERS probes oversight of two outside hedge fund advisors

As part of the inquiry, California Public Employees' Retirement System officials found that $36 million was paid to two hedge fund advisors who had been working without contracts. The official who oversees the $5.8-billion hedge fund portfolio was temporarily placed on leave and fined, according to people briefed on the matter.

A CalPERS spokesman declined to discuss the disciplinary action but acknowledged that CalPERS was investigating its dealings with two outside advisors, hedge fund management firm Paamco and a unit of Swiss banking giant UBS.

Both firms have been working with CalPERS since 2003, but their contracts lapsed two years ago. CalPERS continued to do millions of dollars of business with them regardless, which financial experts say exposed the system to legal and financial risk.