New call for tighter controls over placement agents

The state’s top elected fiscal officials and the head of CalPERS’ board urged the board to back tougher rules over so- called placement agents that would include requiring disclosure and ethics regulations that govern lobbyists and are enforced by the Fair Political Practices Commission, the state’s political watchdog.

The proposal comes amid published reports of the multi-million dollar fees collected by the agents, well-connected intermediaries who serve as go-between between CalPERS and companies seeking investment capital. The California Public Employees’ Retirement System has about $200 billion in assets and a vast network of investments.

CalPERS President Rob Feckner, Treasurer Bill Lockyer and Controller John Chiang wrote fellow board members that “stronger rules need to be put in place given recent events that have alleged undue influence by placement agents attempting to sway investment decisions of pension funds in California.” The board is expected to consider the proposal next week.
“The state must adopt stronger transparency and accountability requirements for all parties engaged in activities to influence public pension investment decisions,” the letter said.  “By enacting this change, our members, employers and the public will be able to rest assured that all who serve the system do so with transparency, ethics and accountability.”

Under the proposal, placement agents would be defined as lobbyists and be subject to a number of regulations, including:
—A ban on compensation paid to placement agents that is contingent upon defeat, enactment, or outcome of any proposed investment action;

–Registration as placement agents, placement agent firms or placement agent employers and quarterly reporting of activities including any honoraria, gifts, fees or other compensation;

–Significant limits on gifts to individuals;

–Prohibition on campaign contributions; and

–Required attendance at a biennial ethics class.

In May, CalPERS approved policies requiring its investment partners and external managers disclose their retention of placement agents, the fees they pay them, and the services performed. The policy also requires agents to register as broker-dealers with the U.S. Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority (FINRA) — or CalPERS will decline the opportunity to retain or invest with the external manager or investment vehicle.

Meanwhile, CalPERS has launched a special review of placement agents to ensure that the pension fund was not victimized in any way. Feckner recently cautioned CalPERS Board members to not meet with placement agents until the review was complete.
The CalPERS board supported a now-enacted legislative measure, AB 1584 (Hernandez), to establish disclosure requirements for placement agents and their firms and stronger revolving-door prohibitions for public agents for the fund.

“I commend Rob Feckner, Controller Chiang and Treasurer Lockyer for advancing stronger reforms,” said Assemblyman Ed Hernandez, author of AB 1584 and Chair of the Assembly PERSS Committee.  “This is a natural follow-up to the work of our Committee and I look forward to carrying the bill that will help CalPERS expand protections for the System.”

CalPERS provides retirement benefits to more than 1.6 million State, school and local public employees, retirees and their families. 

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