The New Mexico State Investment Council has suspended gatekeeper Aldus Equity for its alleged role in a New York pension scandal that has rocked the private equity world. Its overall portfolio advisor, New England Pension Consultants, will fill the role in the interim.
“We basically want to make sure there’s no matters of concern regarding the advisory work they’ve done for us,” a spokesman for the endowment said.
Aldus is mentioned in joint complaints filed by Andrew Cuomo, New York’s attorney general, and the US Securities and Exchange Commission about an alleged finder’s fee kick-back scheme. Aldus and the other investment firms mentioned in the complaints have not been charged with any wrongdoing, though media reports have stated that Cuomo has expanded the investigation to look at specific firms and potential civil violations in connection wtih the scandal.
Cuomo in March indicted Henry Morris, a former political official for former New York Comptroller Alan Hevesi, and David Loglisci, former deputy controller and chief investment officer of the $122 billion pension, for allegedly running a scheme to collect sham finder’s fees from investment firms looking for commitments from the pension. Cuomo last week indicted New York Liberal Party head Raymond Harding for receiving $800,000 in sham fees as part of the scheme, as well as Barrett Wissman, former head of Texas-based hedge fund Hunt Financial Ventures. The US Securities and Exchange Commission is running a parallel investigation into the scandal.
The $11.5 billion New Mexico SIC, technically an oil and gas endowment, has subsequently requested information on placement fees from all its investment managers across all asset classes. Some managers have refused to disclose the information, according to the endowment spokesman, who declined to name which firms refused to disclose the information. The endowment does not believe that any of its staff members had contact with Morris, but “we’re certainly looking into that more closely”, the spokesman said.
New Mexico SIC hired Aldus as its national private equity advisor in 2004, the same year Aldus began its relationship with Morris, according to the SEC. Aldus was hired by the New York pension to run its emerging fund portfolio after the advisor agreed to pay a Morris-owned company Pantigo an amount equal to 35 percent of the management fees it received from the pension, according to the SEC complaint.
The New York pension bought a $175 million limited partnership interest in the Aldus/NY Emerging Fund in 2004, and an additional $200 million interest in 2006. In exchange, Aldus paid a Morris-affiliated company $319,374, the complaint said.
Aldus apparently wanted to sever its relationship with Morris in 2005 as it was considering an acquisition transaction with a large investment bank, but Morris warned Aldus he could “take the retirement fund’s business away from Aldus just as quickly as he had given it “, the complaint said.
The SEC alleges Morris and Loglisci used their relationship with Aldus to extract sham finder’s fees from smaller private equity firms like Falconhead Capital Partners that fell below the pension’s minimum amount criteria required to make an investment, the complaint said.
Aldus has not been charged by the SEC nor the New York Attorney General, and earlier this month it defended its performance with New Mexico SIC in a letter sent to the endowment’s board.
“Aldus has diligently served the SIC as an advisor, acting in a non-discretionary capacity, since 2004. We have fulfilled all of our obligations and exceeded the SIC’s expectations. Aldus has developed a very successful track record by working with the staff and board of the SIC. Investments recommended by Aldus have, as of 30 June, 2008, performed above the benchmarks in all relevant years,” it said in the letter.
Through its disclosure efforts, New Mexico SIC said it has discovered The Carlyle Group and Quadrangle Group used a firm affiliated with Morris to secure investments of $20 million each from SIC, the spokesman said. SIC made the Carlyle investment in 2005 and allocated $20 million to Quadrangle in 2004. SIC will be reviewing its relationship with Carlyle and Quadrangle, the spokesman said.
“We’re looking for more information and we want to follow up with them and talk to them a bit about what motivated them to make that hire and how that hire was useful for them specific to [SIC],” the spokesman said.
Media reports have indicated that Cuomo has expanded the NY Attorney General’s investigation to include some of the investment firms, including Carlyle and Quadrangle. Specifically, according to reports, the investigation is looking at former Quadrangle head Steve Rattner, now serving as an advisor on the auto industry to the administration of US President Barack Obama.
Carlyle and Quadrangle did not return calls for comment.