The president of Calpers urged fellow board members at the biggest U.S. public pension fund on Wednesday to back his plan to require placement agents to be subjected to laws for lobbyists in response to events alleging their undue influence over investment decisions.
Placement agents are middle-men who help investment companies, notably private equity and real estate firms, win contracts from pension funds.
They have come under increasing scrutiny as a result of a pay-to-play probe in New York that has uncovered a web of connections between placement agent firms, investment firms and public retirement systems across the country.
The probe has touched on placement agents seeking deals at Calpers, the $200 billion California Public Employees' Retirement System, and the fund this year began pressing its money managers to disclose who their placement agents are and the fees they collected for their services.
Calpers has learned placement agent firms led by a former board member have reaped tens of millions of dollars in fees for helping investment firms win business at the fund.
Associates of that former board member have also been found to have contributed money to the reelection effort of a veteran board member who chaired Calpers' investment committee.
Calpers board President Rob Feckner in a letter to other board members called for strengthening rules to better police placement agents -- on top of a state law passed this year that would restrict how they do business at state pension funds.
Feckner said stronger rules need to be put in place given recent events that have alleged undue influence by placement agents attempting to sway investment decisions of pension funds in California, according to a Calpers statement.
Feckner in the statement said his proposal aims to improve transparency on its investments.
By enacting this change, our members, employers and the public will be able to rest assured that all who serve the system do so with transparency, ethics and accountability, said Feckner, who has advised Calpers board members to not meet with placement agents until the fund's disclosure campaign is complete.
Under Feckner's plan, placement agents would be defined as lobbyists and could not be paid based on the outcome of any proposed investment action by the fund.
They would also be required to file quarterly reports of their activities, fees or other compensation and would face limits on gifts to individuals along with a prohibition on campaign contributions.
Feckner's letter follows Calpers investment and legal staff urging board on Tuesday to clarify language in its policy on placement agents.
In a separate memo to the Calpers' board unveiled on Tuesday, Wilshire Consulting urged harsh financial penalties on external managers who are not candid with the fund about their use of placement agents and any fees paid to them.
Punishments could include penalty-free withdrawals by Calpers from investment portfolios and a percentage share of the value of a portfolio, according to Wilshire.
While this may seem onerous at first glance, we believe that it will force external parties to seriously undertake compliance efforts, a Wilshire memo said.
Calpers' board may act on the staff and Wilshire recommendations on Monday.
Feckner said he will seek to discuss his proposal with other board members during board meetings next week.
(Reporting by Jim Christie; Editing by James Dalgleish)