LACERS, New Mexico draft placement fee disclosure policies

As a kick-back scandal involving several public pensions grows in the US, LACERS is the latest pension to draft a disclosure policy for placement agents and other third-party marketers.

The $9 billion Los Angeles City Employees’ Retirement Fund (LACERS) has mandated that investment firms looking for commitments from the pension reveal the identity of any third-party marketers involved in the investment process.

The pension’s board approved the policy Tuesday, adding to the growing list of public pensions creating or strengthening placement agent disclosure rules in the wake of a pay-for-play scandal that has shaken the US private equity industry.

The $164.9 billion California Public Employees’ Retirement System charged its staff this week with creating a disclosure policy for placement agents and other third-party marketers, and the New Mexico State Investment Council, which governs the state’s $11.5 billion oil and gas endowment, also is considering guidelines for disclosure.

LACERS, CalPERS and New Mexico SIC have ties to the scandal involving the New York State Common Retirement Fund, in which a former political operative and pension staff member allegedly collected sham finder’s fees from investment firms for commitments from the pension.

New York Attorney General Andrew Cuomo has indicted four people in the scheme, including Henry Morris, former political operative with former New York Comptroller Alan Hevesi, and David Loglisci, former chief investment officer of the New York state pension. None of the investment firms named in the complaint are charged with any wrongdoing.

LACERS revealed indirect ties to the scandal through a California-based placement agent called Wetherly Capital Group. A Wetherly director, Vicky Schiff, was on the LACERS’ board in 2005 when a Wetherly client, Palladium Equity Partners, was trying to secure a $10 million investment from the pension. Wetherly said it did not advise Palladium while the firm was trying to secure the investment from LACERS, and Schiff recused herself for the vote to approve the commitment.

“Our goal is to increase transparency and avoid conflicts of interest,” LACERS president Eric Holoman said in a statement.

LACERS is also establishing more stringent due diligence policies for the selection of investment managers that will be part of an updated strategic plan.

New Mexico SIC is developing a policy mandating disclosure of third-party firms who get paid a fee by investment firms looking for commitments from the endowment.

“We’ve been developing a policy for some time where if you get paid for anything – an administrative fee, a consultant fee, an attorney fee – related to an investment with us, we want to know about it,” a spokesman for the endowment said.

New Mexico SIC has compiled information from more than 200 investment managers about any fees paid to external consultants involved with investments with the endowment.

The list includes a company called Searle, which is affiliated with Morris and has ties to the New York Common scandal. Searle was used by The Carlyle Group in 2004 to secure a $20 million commitment from the endowment, and Quadrangle Group in 2005 for a $20 million commitment for its $2 billion second fund. Quadrangle also used a sub-agent on the investment, Monument Group, according to New Mexico SIC's documents.

Carlyle paid Morris $150,000 for his work as a placement agent on the investment, New Mexico SIC’s documents show. The amount Quadrangle paid to Morris was not disclosed, and a spokesperson said the endowment believes no payment changed hands.

“We believe there wasn’t a payment, although there was an agreement in place,” the spokesperson said.