Imagine a job that pays $25,000 a month, plus a guarantee that you would fly first class, and be chauffeured to the finest hotels. And if you landed a deal, your piece of the action would be $2.5 million, minimum.
Indeed, life is sweet for some placement agents, the middlemen who help investment houses win business from public pension funds. Yet the time has come for California to put a lid on the sugar bowl. To reduce the potential for kickbacks and corruption, state lawmakers must rein in these behind-the-scenes deal-makers and make their dealings more transparent.
The initial read is not good. Legislation to regulate the worst excesses of placement agents passed the Assembly Public Employees, Retirement and Social Security Committee on Wednesday. But it faces more Assembly hearings, and since it changes the Political Reform Act, it must get a two-thirds vote in both houses.
Four Democrats voted for it, the bare minimum. Assemblywoman Diane Harkey, a Republican from Dana Point, voted against the bill. Assemblyman Brian Nestande, R-Palm Desert, abstained.
The bill, Assembly Bill 1743, would require that placement agents register like lobbyists. Importantly, it would bar placement agents from collecting contingency fees based on success. California lawmakers banned such fees for lobbyists 60 years ago, knowing such arrangements are corrupting.
That ban faces stiff resistance from the investment firm Blackstone Group and a trade group, as The Bee’s Dale Kasler reported.
There are other opponents.
Former Sen. Richard Polanco was in Sacramento working to weaken the bill, arguing that newer or small-scale money managers, many of them Latinos, need placement agents who receive contingent fees in order to get to pension fund managers.
Polanco has a stake in the outcome. He worked with Alfred Villalobos, the former California Public Employees’ Retirement System board member who earned more than $60 million in placement agent fees.
One Villalobos-Polanco contract with a Wall Street firm included a $25,000 monthly retainer, plus a 1 percent fee so long as they won a CalPERS commitment worth at least $250 million.
Treasurer Bill Lockyer is leading the charge for transparency. He knows the bill is in trouble, but has a suggestion. If it stalls, he will push to have CalPERS and the California State Teachers’ Retirement System halt all business with funds using placement agents.
The fate of AB 1743 will be a test of Democratic leaders, John Pérez and Darrell Steinberg, and also of Assembly GOP leader Martin Garrick and his Senate counterpart, Dennis Hollingsworth. Will they side with placement agents that have brought disgrace upon the state’s pension funds? Or will they stand behind the interests of taxpayers and open government?