CalPERS backs requiring agents to register as lobbyists
The California Public Employees’ Retirement System, saying it wanted to be more open and clear a cloud hanging over it, has backed proposed legislation to regulate outside investment managers’ use of so-called placement agents to pitch huge private equity deals with the fund.
On Wednesday, the pension fund’s board endorsed a not-yet-written measure that would require such sales intermediaries to register as lobbyists with the state the same way that the people who lobby the Legislature, the governor’s office and other government agencies do. Such lobbyists must disclose regularly the names of their clients and the fees they receive.
The proposal got only one dissenting vote on the 13-member board. That came from George Diehr, a Cal State San Marcos business professor and head of the CalPERS investment committee.
A registration policy, he argued, might discourage placement agents from operating in California. The agents, he said, can play a useful role helping small private equity funds get a piece of CalPERS’ $200-billion portfolio.
The proposal, which would have to be drafted as a bill and introduced at the Capitol, also would ban contingency payments that are based on the success of the lobbying effort. The measure, if it became law, would further prohibit lobbyists at CalPERS from making political contributions and limit their gift giving.
The lobbyist legislation, along with a placement agent disclosure policy that was approved in May, come in response to a growing inquiry in California that first emerged from a corruption scandal at a New York public pension fund.
Since then, some documents released by CalPERS revealed that a former CalPERS board member who became a placement agent, Alfred J.R. Villalobos, was paid more than $70 million for helping a handful of large private equity and real estate investment funds win billions of dollars of business from the pension system over the last decade.
In October, CalPERS Chief Executive Anne Stausboll hired an outside law firm to investigate the placement agent payments and whether they influenced the fund’s investment decisions.
“There’s been quite a cloud over the pension industry,” Pat Macht, CalPERS’ external affairs manager, told the board. “This will provide a level of high confidence that investment decisions are made in an impartial way.”
The idea of applying state lobbying rules to CalPERS was put forward recently by board President Rob Feckner and two other members, state Treasurer Bill Lockyer and state Controller John Chiang.
Registering placement agents as lobbyists “hopefully . . . takes away the greed factor,” Feckner said Wednesday.
The CalPERS board’s recommendation that the state regulate placement agents wasn’t the only major issue before the board.
The pension fund’s poor return on its investments in the last two years has prompted it to seek more contributions from the state and local governments that support it.
But to ease the financial strain on its participating governments during the current economic downtown, CalPERS has moved to reduce the payments somewhat. Specifically, it has adopted a statistical technique known as smoothing. This allows CalPERS to spread the way it accounts for its recent, steep investment losses over a longer period of time and repay them over the next 30 years.
CalPERS adopted this approach in June to reduce higher payments for local governments, and Wednesday it took the same approach for the state.
The administration of Gov. Arnold Schwarzenegger opposed adopting the technique, to no avail.
An aide to Schwarzenegger said the governor opposed reducing the state’s pension obligation even though he faces a $21-billion budget shortfall for the spending year that starts July 1.
The governor said he would rather hike the state’s CalPERS contribution next year by $1 billion to make sure the pension fund has enough cash to meet more of its future obligations, said Greg Beatty of the state Department of Personnel Administration.
