The business of Aldus Equity, a financial advisor that has helped several public pensions in the US with private equity investments, is in danger of crumbling.
Yesterday, Connecticut Treasurer Denise Nappier fired Aldus, adding the $20 billion pension to the list of US public pensions and funds that have terminated the Dallas-based firm. New York State Common and the $11.8 billion New Mexico State Investment Council have also fired Aldus, while the $83 billion New York City pension system will consider terminating the firm at a trustees’ meeting.
Connecticut, which hired Aldus in June 2008, committed $65 million to the firm, of which about $13 million has been committed to “sub-fund” managers, according to Nappier.
Nappier has also implemented a more stringent disclosure policy for third-party “sub-managers” involved in the investments with the pension.
Aldus’ founder, Saul Meyer, was arrested and charged in connection with a kick-back investigation involving the New York State Common Retirement Fund, a $122 billion public pension, the third largest in the US.
The firm itself was included in a civil complaint lodged by the US Securities and Exchange Commission last week in connection with the kick-back scandal, which has ties to New Mexico, California and possibly other state pensions. New York’s Attorney General Andrew Cuomo said last week he was coordinating with agencies from other states on the investigation.
“I commenced termination of Aldus …to protect Connecticut’s interest out of an abundance of caution,” Nappier said. “In my judgment, Aldus cannot remain focused on its Connecticut engagement under these circumstances.”
A prior Connecticut state treasurer, Paul Silvester, served prison time for his role in a similar pay-to-play scandal involving private fund managers.
Aldus’ attorney, Matthew Orwig, said last week the SEC charges are “appalling and careless with the law and peoples’ reputations”. The SEC charged Aldus “without completing an investigation or even having a conversation with Aldus partners before it took legal action”, Orwig said.
In response to Connecticut’s move Monday to fire Aldus, Orwig again attacked the SEC charges.
“The SEC action against Aldus Equity was wrong, premature and I believe, careless. It was designed to get headlines, not because investigators had completed a review of the entire record,” Orwig said in a statement. “It is telling that the SEC didn’t even bother to meet with the principals or review documents before filing a complaint.
“Aldus’ recommendations are always made based on a careful analysis of investment performance. Understandably, clients are concerned, but the charges in the government’s public statements and filings are baseless. It’s an ambush lawsuit,” Orwig said.
Other US pensions are reviewing their relationships with the firm in the wake of Meyer’s arrest.
Louisiana State Employees Retirement System, the Oklahoma Teachers Retirement System and the Los Angeles Fire and Police Retirement System are assessing their relationships with Aldus.
Louisiana State Employees pension board has suspended Aldus, barring any new investment activity with the firm.
Louisiana’s relationship with Aldus involves two private equity funds to which the pension committed about $125 million. Of that amount, about $70 million is invested in Louisiana-specific private investments “which are good investments for the pension plan and meet the appropriate return requirements along with employing thousands of workers, and generating revenue for the state”, the pension said.
Louisiana is “following the situation closely … LASERS currently is analysing all available options and will discuss it further with the trustees at the next board meeting”, the pension said.
Oklahoma got into private equity investing in September, using Aldus as its guide for early investments in the asset class. The roughly $7 billion pension put Aldus on alert in February after some executives left the firm, according to James Wilbanks, executive director of the pension.
Later in February, Aldus’ role in the scandal came to light and Oklahoma Teachers put Aldus on notice, Wilbanks said.
“The board of trustees has directed staff to gather our own information and assess the situation,” Wilbanks said. The board charged staff with arriving at a recommendation within six months, Wilbanks said.
The LA Fire and Police Pension, which had a market value of about $15 billion as of 30 June, 2008, is reviewing its relationship with Aldus, which began in 2007. A spokesperson said the pension is “concerned” about the allegations involving Aldus. The pension commissioners are meeting on Thursday and could decide to fire Aldus.
Aldus also works with the Pension System of the City of Fort Worth and the San Antonio Fire and Police pension. The about $1.3 billion Fort Worth pension terminated its relationship with Aldus about two weeks ago as part of a consolidation of its private equity managers, according to Ruth Ryerson, executive director of the pension. The pension's other manager is Credit Suisse.
The Fort Worth pension is not concerned about investments made on Aldus’ recommendation, Ryerson said, because the investments were reviewed by the pension’s primary portfolio consultant Consulting Services Group, Ryerson said. Aldus worked with the pension for about three years, she said.
San Antonio did not return calls for comment.