CalPERS vets 2,000 online fund proposals

Since launching its online PPM portal in 2010, CalPERS has received almost 2,000 fund proposals and has funded seven of them – investment vehicles that disclosed paying about $1.8m in placement fees.

The California Public Employees’ Retirement System has received almost 2,000 investment fund proposals on its online fundraising system that was largely panned by the industry when it launched in 2010.

Of the proposals received, CalPERS has funded seven of them that used placement agents, according to a placement agent activity report the system is filing with the California state legislature.

“The purpose of the [fundraising] portal is to provide all external managers equal access to CalPERS, to ensure that all external managers follow the same proposal submission requirements, and that CalPERS utilises consistent, objective criteria and methods to evaluate all proposals,” the system said in documents.

At the time the system was launching the system, CalPERS chief investment officer Joseph Dear said: “We’re working hard to make sure that money managers have all the access they need to do business with us. There’s no need for them to pay someone to call us or to set up a meeting. They can contact us themselves with the tools and technology we have. Our door is open.”

CalPERS is meeting this week and will discuss the placement agent activity report. According to documents, the system has committed to seven managers that paid at least $1.8 million in placement agent fees since 2010.

We're working hard to make sure that money managers have all the access they need to do business with us. There's no need for them to pay someone to call us or to set up a meeting.

Joseph Dear

Fees include $750,000 paid by Wellspring Capital Management to Credit Suisse for its fifth fund, which closed on $1.2 billion; $500,005 paid by PAG Asia to Park Hill Group for its debut fund that was targeting $2.5 billion; $450,000 paid by Linzor Partners to Monument Group for its Linzor Partners II fund, which closed on $465.4 million; and $132,000 paid by KLS Diversified Asset Management to APB Financial Group for its $1.26 billion fund.

The system works like this – proposals are filed online and reviewed by CalPERS’ investment staff. Proposals range from funds in private equity, real estate and infrastructure funds, as well as forestland, commodities, global fixed income and global equity investments. The proposals have to include information about a manager’s history, track record, strategy, deal sourcing and geographic and industry focus.

Once reviewed, the proposals may be declined, accepted for additional due diligence or referred to one of the pension’s external partners for further review.

The system initiated the portal amid an extensive review of placement agent fees paid by its managers in connection with soliciting commitments from CalPERS. The system was proposed as a way to prevent the kind of pay-to-play activity that was being revealed at the time, in which political fixers were paid sham finder’s fees in exchange for commitments from public institutions. This kind of activity was revealed in New York, New Mexico and California.

Several industry officials at the time expressed skepticism about the proposed online platform.

“In PE alone [CalPERS] probably gets 600 to 700 PPMs a year, which very often disappear into the system as the staff at CalPERS triages these, oversees the due diligence process on things they are actually reviewing, and monitors the hundreds of partnerships already in the portfolio,” one source said. “This isn’t new, this is repackaging – unless they are going to hire more people to vet these and answer all GPs in detail.”

Another source questioned whether the system would actually prevent pay-to-play activity.

An agent’s job is not about “greasing someone’s palm to consider something”, the source said. It’s about “knowing on an updated basis what an institutional investor is really interested in. Are they looking heavily at cleantech, and if so what are the parameters? Oh, they were interested in life science, but just made a big commitment to that sector and are probably tapped out for the year. Oh, and the guy on staff who is really interested in mezzanine and is driving that process is … None of that is going to show up online.”