Kentucky identifies placement agent connection

The Kentucky Retirement Systems has found that one placement agent, Glen Sergeon, with a connection to the system's former chief investment officer, did more work for the pension from 2004 to 2009 than any other agent. The pension found no evidence of illegal activity.

The $14 billion pension, which recently completed a placement agent audit, found that Sergeon, working with three different firms called Diamond Edge Capital Partners, Bleecker Street Partners and Cazanave, secured six investments worth $426 million for private equity managers from the pension and was paid nearly $6 million in fees.

Due to this prior working relationship and the continuous use of Mr. Sergeon, there could be a perceived appearance of preferential treatment. Kentucky audit

Sergeon and Kentucky's former CIO Adam Tosh worked together on a global emerging markets strategy when Tosh was CIO at the Pennsylvania State Employees' Retirement System, according to the audit. It's not clear who Sergeon worked for at the time, but he formerly worked as director of public fund marketing for the US institutional effort of Merrill Lynch Mercury Asset Management.

“Due to this prior working relationship and the continuous use of Mr. Sergeon, there could be a perceived appearance of preferential treatment,” according to the audit.

Tosh resigned as CIO in June to join investment consultant RogersCasey in Connecticut. Tosh told the Lexington Herald-Leader newspaper earlier this month his only face-to-face meeting with Sergeon took place in 2004 and lasted for three hours. “He called on us like any other salesman,” Tosh told the newspaper. Sergeon told the newspaper he and Tosh “were not friends”.

The audit found that managers seeking commitments from Kentucky had paid almost $13 million since 2004 to placement agents. The audit, which found no link to pay-to-play activities, accounts for dates ranging from 1 July 2004 to 30 September 2009.

As a result of the audit, the compliance officer recommended that pension staff be required to publicly disclose all such connections with placement agents going forward – a step beyond the policy the pension program put in place last year requiring disclosure of placement agent names and fees paid.

Pay to play issues have been the subject of federal and state probes in a number of states including New York.

New York State comptroller Alan Hevesi allegedly presided over a wide-ranging pay-to-play scandal whereby individuals were accused of accepting sham finder’s fees in exchange for securing commitments from the pension. The scandal ensnared former pension officials, influence peddlers and several private equity firms, though Hevesi has not been accused of wrong-doing in the investigation.