10:00 PM PST on Saturday, December 19, 2009
California should treat the middlemen who solicit investments from public pension funds as lobbyists, for that is what they are in all but name. The state’s largest public retirement fund now supports that approach, and the Legislature should write it into law.
Such a step would not be a panacea, but would help deter the perceptions of insider dealing and influence swirling around the California Public Employees Retirement System. Rules that provide greater public scrutiny and put limits on giving by these middlemen would also help protect taxpayers’ stake in the funds. The pension fund, known as CalPERS, has been rocked by revelations about its dealing with “placement agents.” These middlemen help private companies land investment contracts from pension funds, and receive hefty fees from the companies in return.
But the cozy relationships between the placement agents and pension fund officials raise troubling questions about favoritism and political pull in investment decisions. One former CalPERS board member has earned about $70 million over the past decade from helping clients do business with the retirement agency. He also hosted the 2004 wedding of the agency’s then-executive director and paid for a 2006 round-the-world trip for another board member.
Both officials say they reimbursed the costs. But such generosity is disturbing when it comes from someone hoping to gain business from the people in charge of a $195.5 billion investment portfolio. Such close ties create inevitable public skepticism about the pension fund’s investment choices.
So the CalPERS board last week backed proposed legislation that would require the placement agents to register as lobbyists. The proposal would make the agents list clients, fees and contributions, and would limit their giving to officials. It would also ban agents from being paid based on the size of the investment deals they land.
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