The $14 billion New Mexico State Investment Council is looking to hire a firm to assist in gathering research and charting a potential path to litigation to recover losses stemming from an inappropriate use of placement agents.
The selected firm will assist in the “recovery of damages and other losses suffered as a result of inappropriate placement agent fees, investment losses, possible securities law violations, interference with the investment process, fraud, unjust enrichment and other claims,” according to an RFP.
The RFP further stated: “The (State Investment Office) uncovered wide use of placement agents in connection with investments made by the SIO and SIC. Some of the placement agent fees paid by investment managers with respect to those investments may have been either inappropriate or sham payments. These payments may have altered, influenced or corrupted the investment process. Many of these payments were not fully and properly disclosed. As a result, the SIO and SIC may have suffered significant damage and losses,” according to an RFP on the endowment’s website.
The RFP notes that lawsuits are possible as the selected firm may be asked to “draft appropriate legal documents to pursue claims…”
The selected firm will be responsible for reviewing SIC placement agent use from 2001 to present, including an analysis of consultants, placement agents, investment managers, and the hiring process of managers and consultants. This review should include the performance of the investments and a complete analysis of all claims, damages and losses.
New Mexico SIC had suspended alternatives investing by its oil and gas endowment in April 2009 after its former private equity consultant, Aldus Equity Partners, was linked to the pay-to-play scandal involving the New York State Common Retirement Fund.
The endowment’s disclosed list of GP relationships and their placement agents and sub-agents includes well known fundraisers in the private equity market as well as names associated with the New York State Common Retirement System pay-to-play scandal, such as Hank Morris.
In May 2009, New Mexico Governor Bill Richardson decided to ban all placement agents from involvement with investments with the SIC. He also established a six-month ban on placement agent involvement with the state’s Education Retirement Board.
Governor Richardson ordered SIC and the teachers’ pension to fire Aldus Equity, which was SIC’s private equity consultant since 2004. Last fall, SIC's chief investment officer Gary Bland resigned.
Saul Meyer of Aldus Equity admitted the following in his plea allocution: “On numerous occasions, however, contrary to my fiduciary duty, I ensured that Aldus recommended certain proposed investments that were pushed on my by politically connected individuals in New Mexico. … I did this knowing that these politically connected individuals or their associates stood to benefit financially or politically from the investments and that the investments were not necessarily in the best economic interest of New Mexico.”
The SIC expects the selected firm to potentially work with the SEC and Department of Justice, which are both investigating the use of placement agents in New Mexico, according to the RFP.
Separately, New Mexico SIC announced plans earlier this month to start investing in private equity again, after a 14-month hiatus.
New Mexico SIC is “optimistic that [the] program can begin making new [private equity] commitments in Q3 2010”.