CalPERS targets agent fees
The leader of the California Public Employees’ Retirement System -- the country’s largest public pension fund -- on Monday ordered its staff to draft a policy requiring investment companies hired by the fund to disclose fees paid to the firms’ outside marketers.
The move by the state agency, known as CalPERS, came after an investigation of alleged pension-fund improprieties in New York state expanded to focus on two board members of a pension fund for Los Angeles city police officers and firefighters. One member is a former president of CalPERS.
Rob Feckner, the current board president at CalPERS, which manages $176.7 billion in retirement money for state employees, said he was pressing for more disclosure because he wanted to ensure that the Sacramento-based agency operated with “appropriate standards of transparency, accountability and integrity in our investment process.”
Meanwhile, an agency that invests retirement assets for civilian Los Angeles city employees is also taking steps to highlight the role of so-called placement agents, intermediaries who help market investments to the agencies overseeing pension funds.
The board of the Los Angeles City Employees’ Retirement System, or LACERS, is scheduled to vote today on requiring an investment firm seeking business from the pension fund to reveal the names of its placement agents and to state whether they would receive fees if the firm obtained a contract with LACERS.
Charles M. Elson, director of the Weinberg Center for Corporate Governance at the University of Delaware, said the moves to bolster disclosure were advisable in light of the widening investigations of placement agents.
“Given what’s happened, anything you can do to shore up public confidence in the integrity of the fund makes sense,” he said.
The policy shifts by the city and state agencies mirror actions in recent years by two other California and Los Angeles pension funds.
In New York, where the placement agent scandal surfaced, city and state pension funds are going further, taking steps to ban outright the involvement of middlemen in investment decisions. New York Atty. Gen. Andrew Cuomo, who has been investigating investment marketers in conjunction with the Securities and Exchange Commission, called those actions “a long-overdue reform.”
This month the SEC sent letters to two board members of the Los Angeles Fire and Police Pensions agency, asking them to turn over documents regarding at least three investment marketing firms that have come under scrutiny in New York.
The letters asked the board members, Sean Harrigan and Elliott Broidy, to identify any money they made from businesses that are involved, directly or indirectly, with pension fund investments. The agency also sought bank account data as well as information on the board members’ income since Jan. 1, 2005.
Harrigan, a retired top official of the United Food and Commercial Workers Union in Southern California, is a former president of the CalPERS board. Neither Harrigan nor Broidy responded to calls seeking comment.
At LACERS, which manages an $8.2-billion portfolio, the agency’s staff and consultants have been contacted by third-party marketers in some cases but might not be aware of their involvement in every situation, said spokeswoman Linda Aparicio.
“It could be an activity that occurs behind the scenes and we wouldn’t even have known about it,” she said.
When the Los Angeles Fire and Police Pensions board voted in 2005 to invest $10 million in Quadrangle Group, the agency was aware of two placement firms representing Quadrangle but was never told of the involvement of Searle & Co., run by political consultant Henry “Hank” Morris, officials of the L.A. agency said.
Quadrangle notified pension officials of Searle’s involvement after Cuomo last month filed an indictment of Morris, agency officials said.
The indictment accuses Morris and a former official in the state comptroller’s office, David Loglisci, of receiving millions of dollars in kickbacks from firms seeking contracts to manage assets of the New York State Common Retirement Fund between 2003 and 2006.
Wetherly Capital Group, a Los Angeles firm that markets investments to pension funds, paid Searle $313,750 in 2004, according to the indictment. A spokesman for Wetherly, founded by Daniel Weinstein, a local Democratic political advisor and campaign contributor, said the money was for consulting work.
The moves toward increased disclosure follow similar efforts by the California State Teachers’ Retirement System, or CalSTRS, in 2006 and by the Los Angeles Fire and Police Pensions agency in 2007.
At CalSTRS, all participants in investment decisions -- including board members, staff and outside portfolio managers -- must disclose their contacts “if they engage with a placement agent or any matchmaker type of company,” said CalSTRS spokesman Ricardo Duran.
A spokesman for state Treasurer Bill Lockyer, who sits on the boards of CalPERS and CalSTRS, said Lockyer spearheaded CalPERS’ latest move.
The treasurer “would prefer to take it even one step further” by requiring placement agents to register, said the spokesman, Joe DeAnda.
“His bottom-line philosophy is that both PERS and STRS should be free of any taint of pay-to-play,” DeAnda said.