In 2009, the California Public Employees’ Retirement System (CalPERS) – the largest state pension fund in the country, with about $228 billion in assets held for the benefit of over 1.6 million California public employees, retirees and their families – discovered that exorbitant fees had been paid by certain of its external money managers to placement agents.  CalPERS retained the law firm of Steptoe & Johnson LLP to investigate whether the payment of these fees compromised the interests of its participants and beneficiaries.  The Steptoe investigation focused on placement agents that allegedly used their connections with certain members of CalPERS’ Board of Administration (Board), executive staff and senior officers to obtain excessive fees from money managers and others who wished to obtain access to CalPERS contracts.  As previously reported in the Hedge Fund Law Report, in December 2010, the law firm issued a series of twelve preliminary recommendations to CalPERS’ Board and its executive staff for its immediate consideration in remedying the harm to its beneficiaries and participants caused by the improper use of placement agents.  See “CalPERS Special Review Foreshadows Seismic Shift in Business Arrangements among Public Pension Funds, Hedge Fund Managers and Placement Agents,” Hedge Fund Law Report, Vol. 4, No. 1 (Jan. 7, 2011).  Since that time, CalPERS has effectively adopted each of these recommendations.  Then, on March 14, 2011, Steptoe & Johnson issued the “Report of the CalPERS Special Review.”  This Report detailed, subject to limitations requested by law enforcement agencies and allegations for which the law firm could not obtain sufficient corroboration, the apparent misconduct and ethical breaches committed by former CalPERS Board members and employees.  The Report also offered four additional recommendations to prevent a recurrence.  As a result of its size and experience with hedge funds, CalPERS is a trendsetter for other public pension funds and institutional investors with respect to hedge fund investment terms and governance, placement agent relationships and related matters.  Accordingly, the Report, like the previously issued recommendations, is of broad interest to hedge fund managers, investors and service providers.  See generally “Lessons for Hedge Fund Managers on Liquidity, Allocations, Marketing and More from Yale’s 2009 Endowment Report,” Hedge Fund Law Report, Vol. 3, No. 14 (Apr. 9, 2010).  Indeed, the Report acknowledges that CalPERS’ experience “was apparently no different . . . than that of a number of other public pension funds.”  This article summarizes: the findings of the Report; the four key recommendations made in the Report; and the terms of letter agreements entered into with respect to fees between CalPERS and some of its more prominent external money managers, including Apollo Global Management.