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CalPERS approves disclosure rules for placement agents

The California Public Employees Retirement System, prompted in part by investigations into New York pension funds, has approved new rules requiring the disclosure of payments to so-called ‘placement agents” – the middlemen who often line up deals between pension funds and clients.

CalPERS’ board on Monday adopted a policy requiring those people or firms that hire placement agents to “disclose fees and other information about the placement agents they hire to seek CalPERS business.” The $179 billion public pension fund is often approached by people seeking capital for their businesses.

“This policy will help us ensure that our decisions are made solely on the merits of proposed investments with full transparency and disclosure,” said Rob Feckner, CalPERS Board President. “We want to know who’s being hired, how much they’re being paid, what they’re paid for, and who pays them.”

According to CalPERS, the rules also require that placement agents must register as broker-dealers with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority. The disclosures must include “agents” identities, resumes of key people, description of compensation and services, copies of agreements, and if the agent is registered with the SEC or as a lobbyist in any state or national government.”

The new guidelines affect partners and external managers who retain placement agents to arrange meetings, prepare presentation materials, identify potential limited partners and otherwise facilitate communication with CalPERS regarding potential investment of its assets.

CalPERS said it commits capital to external managers and funds but isn’t involved in the fees that they pay agents who may represent their business to the pension fund.

The policy was developed following recent public disclosures about “pay-to-play” allegations at other public pension funds, including in New York. There, state Attorney General Andrew Cuomo has launched an investigation into possible illegal conduct by placement agents.

Cuomo began a New York City pension fund investigation at the request of City Comptroller William Thompson, who recommended elimination of middlemen in investing pension funds.

Earlier, the state of New York banned the use of placement agents, lobbyists or other paid intermediaries in investments by the state’s $121.9 billion pension fund.

 In New York, a former placement agent with a unit of Blackstone Group LP that lobbies public pension funds, pleaded guilty this week to securities fraud. Julio Pamirez Jr., 48, pleaded guilty to a misdemeanor count and is cooperating with the New York authorities, according to Cuomo’s office.

The allegation concerned Ramirez’s activities while he was with Wetherly Capital Group of Los Angeles, where he worked before joining Blackstone. Wetherly is an investment management firm, according to Cuomo.

CalPERS is putting together a public list of the placement agents it deals with, along with their firms, although there was no immediate indication of when it would be released.

“This policy will strengthen overall confidence in our decision-making and prevent impropriety and the appearance of impropriety,” said George Diehr, Chair of the CalPERS Chief Investment Committee.

The proposed policy statement says, in part, that CalPERS “adopts this policy to require broad, timely, and updated disclosure of all placement agent relationships, compensation and fees. 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 would apply to all external manager agreements made after adoption and to existing agreements if their terms were extended or if there were new CalPERS commitments to funds. In addition, the policy would apply to partnerships in which CalPERS has a majority ownership interest,” CalPERS said.


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