California mis-places the agents

Kimberly Romaine
09 February 2010

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CalPERS, CalSTERS trickier to access т but for the wrong reasons, reports Kimberly Romaine

The latest Californian Assemblyman placement agent bill, announced today, negates the current mode of placing funds in the US, reeks of populist undertones, and opens the door for non-regulated agencies to step in to the US's largest pension pot.

This is a shame, since it is sponsored by none other than institutional giant CalPERS, alongside California State Controller John Chiang and Treasurer Bill Lockyer. The bill, put forward by Covina Assemblyman Ed Hernandez, would define placement agents as lobbyists, subjecting them to gift limits, campaign contribution prohibitions, and prohibiting them from receiving compensation contingent upon any CalPERS investment decision. Chiang and Lockyer are pushing for ‘fast approval' by the Legislature.

Sounds good in theory, except that it goes against the current (better) way of doing things.

If passed, the proposal would make it nearly impossible for placement agents to do business across the US, since the majority of US state pension funds require that placement agents are actually not lobbyists, as such groups are not stringently regulated. So for Hernandez to require those placing funds to register as lobbyists before pitching investments seems to put ethical concerns above regulatory ones.

But even most agents back regulation of their business, particularly in the wake of last year's pay-to-play scandal, which had professionals racing to be seen to be proponents for regulation. Thus claims that this latest attempt will increase transparency and accountability is raising eyebrows, with some even suggesting that this requirement opens placement up to non-regulated - and thus potentially unscrupulous - single agents.

Said Lockyer in a statement: "Public pension fund investment decisions should not carry even the faintest whiff of secret handshakes in the shadows with politically-connected influence peddlers. This legislation will help protect the integrity of those decisions by increasing transparency and reducing the ability of high-paid middlemen to use money and gifts to win favorable treatment. And it will help make sure the interests of workers, retirees and taxpayers remain paramount."

One agent has explained his firm will need to contract out to a third party set up as a Californian lobbyist to do business with pension funds there.

Hernandez is the same man behind last autumn's placement agent law which put into place new reporting requirements.