The $176.7 billion California Public Employees’ Retirement System is drafting a policy to “ensure complete disclosure of investment placement agents and their fees”.
The US' largest public pension plan does not currently have rules that force external investment managers to disclose the use of placement agents or how much they pay them, according to a spokesperson with CalPERS. No specifics of the policy were available Monday.
CalPERS' announcement comes as an investigation into sham finder’s fees involving the $122 billion New York State Common Retirement Fund expands throughout the US.
New York Attorney General Andrew Cuomo has indicted four people in the scheme, including Henry Morris. Morris was a former political operative with former New York Comptroller Alan Hevesi, who is not accused of any wrongdoing.
Morris’ reach allegedly extended to California and New Mexico, where pensions in those states had dealings with firms tied to the scandal. No firm named in the complaint has been charged with any wrongdoing.
CalPERS also has indirect ties to the scandal through a Los Angeles-based firm called Wetherly Capital Group, which was co-founded by Vicky Schiff and Peter Borges. Schiff and Borges also helped form private equity real estate funds of funds manager AVP Advisors, and both are currently employed as managing principal and principal of the firm.
Wetherly, which allegedly paid more than $300,000 to Morris in connection with investments from various firms, served as a placement agent soliciting CalPERS’ interest in 10 funds from 2002 to February 2009, Macht said.
The funds include Palladium Equity Partners III; Paladin Homeland Security Fund; ITU Ventures III; Giza Venture Fund IV; Aurora Equity Partners III and AIG Global Emerging Markets Fund II. Wetherly paid Morris as a consultant, the firm said.
“The $314,000 refers to payments made to Morris’ company for work that Morris performed as consultant,” a Wetherly spokeswoman said. “Wetherly and its personnel have been fully cooperating with the Attorney General’s investigation.”
CalPERS board probably won’t finalise the new policy at its meeting in mid-May, the spokesperson said. Investment staff have been instructed to analyse the role of placement agents in soliciting investments from the pension.
CalPERS does have one policy that forces any pension board member to disclose if they’ve had communications with an external manager looking for an investment, according to the spokesperson. “The idea being, before a vote is made on an investment, everyone who has to vote on it knows who talks to who,” the spokesperson said.
Neighbouring pension fund, the $161 billion California State Teachers’ Retirement System (CalSTRS) has had a placement agent disclosure policy in place since 2006. Prior to the pension making any investment, external managers must disclose all third party relationships with people or firms that assisted in soliciting the pension, and any fees paid in connection with the work.
“We wanted to set the gold standard for ethical behavior,” a spokesperson for CalSTRS said. “This wasn’t to fix any problem we had … it was all part of greater transparency. We called on our holdings to operate at a greater level of transparency, and this was our way to walk the walk.”
CalSTRS also limits the amount of campaign contributions external managers can make to people or firms the pension has contracts with, and policies governing communication between board members and potential business partners.
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