5 Bigger Problems Than Placement Agents
In the wake of New York’s kickback scandal, public pension funds have been bending over backwards to declare their independence from placement agents. Some new policies have been reasonable (see CalPERS), while others have been reactionary (see New York City and New York State). Overall, however, they’ve been diversionary. Simply put, placement agents are well down on the list of things that are wrong with public pension systems, vis-à-vis their investments in private equity. Here are five more destructive issues – none of which are being publicly addressed by elected officials or their mouthpieces. 1. Politicians There is no greater source of corruption in public pension systems than the elected/appointed officials charged with being those systems' fiduciary. Not just Treasurers and Comptrollers, but also Trustees and other such officeholders. I'm not saying they're all rotten, but far more of these people have taken kickbacks than have private equity portfolio managers. Some of the kickbacks are Hank Morris-esque, while the majority come in the form of campaign donations or other favors. All of them, though, result in downward pressure on PE portfolio managers to pay special attention to certain investment prospects. "When I took over ," one former manager told me, "I was informed that I was responsible for 80% of our private equity investments. When I asked about the other 20%, I was told not to worry about it." I've heard that same story repeated over and over, sometimes with the percentages flipped.
