The giant is stirring.
The California Public Employees’ Retirement System is sponsoring important legislation that would shine light on the shadowy world of placement agents. The bill is no panacea, but it could guard against abuses. The pension board deserves credit for pushing it forward.
As introduced, the legislation – AB 1743 by Assemblyman Ed Hernandez, D-West Covina – would require that placement agents play by the same rules as lobbyists in Sacramento. They would have to register with and report to the Fair Political Practices Commission and the secretary of state. Their identities would be disclosed publicly on the secretary of state’s Web site, as would their clients and what their clients pay them.
The bill would extend the requirement to the California State Teachers’ Retirement System and local pension funds in municipalities. Importantly, placement agents would be prohibited from receiving payments based on whether they help their clients obtain business.
Until recently, the public had no idea about the magnitude of the payments to placement agents, or which investment funds had retained them.
But more than 600 investment houses complied with a CalPERS request that they voluntarily disclose whether they had used placement agents, and the amounts they paid.
The top 10 placement agents received an astounding $125 million.
The placement agent business has come under scrutiny largely because of the investigation by New York Attorney General Andrew Cuomo into that state’s pension fund system.
Cuomo and his investigators have reached into California, gaining a guilty plea in a bribery case against Elliott Broidy, a major Republican fundraiser from Los Angeles who until recently headed a firm that manages up to $50 million in California pension fund money.
It’s not known whether Broidy’s firm, the Los Angeles-based Markstone Capital, hired a placement agent. The firm has not told CalPERS whether or not it used a placement agent to gain $50 million commitment from the pension fund. If Hernandez’s legislation had been law, any agent who represented Markstone would have been required to file the disclosure or face administrative fines and criminal sanctions.
The lobbying battle has begun. Third Party Marketers Association, representing more than 70 agents, is presenting arguments against the fee provisions of Hernandez’s bill, while another trade group, the Securities Industry and Financial Markets Association, has retained lobbyists to work on the measure.
But CalPERS, reinforced by Treasurer Bill Lockyer and Controller John Chiang, presents a powerful force. It’s the largest U.S. public pension fund, managing $195.5 billion for more than 1.6 million active and retired public employees and their families. When CalPERS speaks, the industry needs to listen.