CalPERS to run placement fee audits

The California Public Employees’ Retirement System has approved a number of measures recommended by a special review on the use of placement agents.

The California Public Employees’ Retirement System will soon implement periodic audits to ensure that pension money is not directly or indirectly used to pay placement fees.

The initiative comes as part of a number of measures recommended by a special review conducted by law firm Steptoe & Johnson, approved by the CalPERS board this week. CalPERS will also continue to review “the fitness” of managers who have used placement agents, and will review management and other fees as part of the “realignment effort”.

“The actions we've taken today further strengthen our commitment to transparency, accountability and sound governance,” CalPERS board president Rob Feckner said in a statement.

The pension has already collected $215 million in fee concessions from a number of external managers who have agreed not to use placement agents when seeking commitments from the pension in the future. In October 2010, CIM Group agreed to cut its fees paid by CalPERS by $50 million over five years, and in April, Apollo Management agreed to cut $125 million over five years.

Some of the recommendations presented by Steptoe & Johnson would require changes in state law.

Other proposed changes would permit outside consultants to fulfill only one of two roles: either offering opinions on investment proposals or providing monitoring services once investments are made. The review also recommended that investment consultants be precluded from performing money management functions.

In the statement, CalPERS chief executive officer Anne Stausboll said the changes would “restore the credibility and trust” in the pension.