CalPERS issues draft policy on placement agent fees
The country’s largest government pension fund Friday gave preliminary approval to a first-ever policy requiring full and public disclosure of multimillion-dollar payments made to intermediaries in investment deals.
Outside investment fund managers and other financial firms have long paid intermediaries -- also known as placement agents -- major sums to help firms obtain lucrative deals with the asset-rich pensions.
But now these connections are under scrutiny.
Last week, the president of the $179-billion California Public Employees’ Retirement System hastily ordered the draft disclosure plan as an alleged kickback scandal spread from New York to New Mexico and California. Some state and local government pensions have opted to ban outright all use of placement agents.
The investigation by New York Atty. Gen. Andrew Cuomo and the Securities and Exchange Commission has led to criminal indictments of intermediaries in New York and Dallas.
The scandal quickly spread to Los Angeles, where two members of the Los Angeles Fire and Police Pensions board resigned this week after receiving letters last month from the SEC asking for information about any income they might have received from companies that did business with the pension fund.
The members, former supermarket union executive Sean Harrigan and investment manager Elliott Broidy, have not been charged with any misconduct.
They said that they had done nothing inappropriate and that their resignations from the board were in the best interests of the $11-billion pension fund.
In a unanimous vote, members of the CalPERS board’s investment policy subcommittee endorsed a staff proposal that would require external fund managers seeking to invest CalPERS money to disclose all payments made to placement agents.
The draft policy, expected to be approved Monday by the full board, also would mandate that placement agents be registered with federal financial regulation agencies.
“The goal of this policy is to help ensure that CalPERS investment decisions are made solely on the merits of the investment opportunity by individuals who owe a fiduciary duty to CalPERS,” the policy states.
The disclosure policy is aimed at making certain that no one with personal ties to CalPERS personnel or business can use those contacts to give a boost to a particular investment fund that wants to partner with the state.
It specifically calls for disclosure by the outside investment managers of “the names of any current or former CalPERS board members, employees, or consultants who suggested the retention of the placement agent.”
Subcommittee Chairman George Diehr, noting that the growing national scandal has singed the reputations of government pension funds across the country, said the new policy was designed to “address any potential erosion of confidence” in CalPERS.
The California fund has long been considered a leader among government retirement plans that have copied many of its practices aimed at making corporate boards more open and accountable.
To that end, state Treasurer Bill Lockyer, who sits on the CalPERS board, urged his colleagues to consider backing a bill in the Legislature that would require all local public pension agencies to adopt the new disclosure policy.
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