Inconsistent indifference

It’s a shame CalPERS may refuse to take a negative stance on the SEC’s proposed placement agent ban, writes Christopher Witkowsky.

The California Public Employees’ Retirement System is taking a curiously – and for private placement professionals, worryingly – tepid stance in the battle over the future role of placement agents in the US.

CalPERS, the biggest public pension in the US with $194 billion in assets and one of private equity’s most influential limited partners, would be forced to comply with any ban the Securities and Exchange Commission enacts on placement agents soliciting public pensions for commitments.

The proposed rule’s comment period, during which people are encouraged to submit letters conveying their opinion and guidance on the matter to the SEC , ends 6 October.

Christopher Witkowsky

The pension’s investment staff recommends CalPERS send the SEC a copy of its own disclosure policy for placement agents, giving the regulator “an example of an alternative to an outright ban”. But it also indicated in its agenda for next week’s investment committee meeting that an accompanying comment letter would likely relay a “neutral” stance to the proposed placement agent ban.

This neutrality differs greatly from some of CalPERS’ public pension peers, like the Missouri State Employees’ Retirement System, which has come out in full support of placement agents in public comments to the SEC. Also protesting the proposed rule are the Georgia Firefighters Pension Fund, the Wisconsin State Investment Board, the Massachusetts Pension Reserves Investment Management board, the South Dakota Investment Council, the Stanford University Management Company.

The chief investment officer for the California State Teachers’ Retirement System, Chris Ailman, told PEO in April that placement agents can be particularly vital for smaller firms lacking resources and relationships to interact with institutional investors.

Real Desrochers, CalSTRS’ former director of alternative investments, recently wrote to the SEC to highlight how placement agents also aid limited partners. “The most valuable placement agents know the actual composition of the investment manager’s holdings through their long experience in the private equity marketplace and can bring intelligent dialogue to the investor that helps map out differences in strategy and overlapping strategies that can help investors in our analyses of multiple exposures,” Desrochers wrote.

So why is CalPERS refusing to come out against a proposed rule that so many others – including, as PEO reported today, the European Venture Capital Association – believe threatens a vital aspect of the private investment fund landscape?

Has it been left with a desire to stay far away from any private placement controversy, given the ongoing ethics probe one of its board members faces for accepting campaign donations from a placement firm that won CalPERS commitments for its clients?

A CalPERS spokesman declined to comment and said the issue will be discussed further at next week’s board meeting.

Let’s hope the meeting produces a change in attitude from “neutral” to “opposed”, as the placement industry deserves to have one of its biggest clients support its right to do business.