Rob Feckner, president of the California Public Employees’ Retirement System, believes placement agents should be subject to the same laws that lobbyists follow under California law.
In a letter to the pension’s 13-member board Wednesday, Feckner asked board members to support making placement agents subject to the state’s lobbyist rules in the California Political Reform Act.
“I … believe that the state must adopt stronger transparency and accountability requirements for all parties engaged in activities to influence public pension investment decisions,” Feckner said in the letter.
Lobbyists’ rules under California law would prohibit placement agents from receiving compensation that is contingent upon the outcome of any investment activity. Periodic registration would be required for placement agents and their companies as well as quarterly reporting of placement activities, including any gifts, fees or other compensation.
The rules would set in place significant limits on gifts from placement agents to an individual, prohibit campaign contributions from placement agents to board members and require attendance at biennial ethics classes for the agents and their companies.
The issue will be discussed at CalPERS' next board meeting 19 November.
CalPERS created its own placement agent disclosure policy in May after the revelation in New York of a wide-ranging investigation into the activities of political fixers who allegedly tried to strong-arm investment firms into paying sham finder’s fees in exchange for commitments from pensions. CalPERS’ policy requires disclosure of payments made to placement agents and external managers.
CalPERS also supported a state law that bars pension board members from selling investments to public pensions in California. That law led to the resignation of the president of the Los Angeles City Employees’ Retirement System, Eric Holoman, in October.
The pension chose to remain neutral over a proposed rule from the US Securities and Exchange Commission that would bar investment firms from using placement agents to solicit public pensions for money. The public comment period on the proposed rule ended in October and no final decision has been made.
CalPERS in October initiated a “special review” of fees paid by investment firms to placement agents in connection with investments from the pension. The review is being performed to “ensure that the pension fund was not victimised in any way”, CalPERS said. Feckner earlier this month cautioned board members not to meet with placement agents in any way until the review was finished.
The review grew out of the revelation that a placement agent, Alfred Villalobos, was paid more than $70 million by investment firms over a five-year period for his work in securing investments from CalPERS. Villalobos is a former member of the pension’s board and his placement agency, ARVCO Financial Ventures, employs former CalPERS' board president Fred Buenrostro.
One CalPERS board member, Charles Valdes, who has received campaign contributions from people with ties to Villalobos, is under investigation by a California political ethics commission.
“The goal of ensuring that every investment decision is beyond ethical reproach can be furthered by regulating all placement agents, their firms, and those who make significant efforts to influence the investment of pension funds in California,” Feckner said.
“If there is one inescapable conclusion we all have seen this year regarding placement agents, their firms and employers, it is this: just as lobbyists attempt to influence legislative or administrative decisions, placement agents attempt to influence the investment of state pension funds,” he wrote.