Issues Update
CalPERS Backs Tough Ethics Rules for Placement Agents
November 30, 2009
CalPERS Board President Rob Feckner has directed CalPERS staff to pursue legislation that would require placement agents to be subject to the reporting and ethics rules governing lobbyists under the California Political Reform Act. The legislation would define placement agents as lobbyists and subject agents to the following regulations:
- Prohibition on compensation paid to placement agents that is contingent upon defeat, enactment, or outcome of any proposed investment action;
- Registration as placement agents, placement agent firms or placement agent employers and quarterly reporting of activities including any honoraria, gifts, fees or other compensation;
- Significant limits on gifts to individuals;
- Prohibition on campaign contributions; and
- Required attendance at a biennial ethics class.
The proposed legislation would be in addition to a new state law advanced by Assembly member Ed Hernandez, D-West Covina, that was modeled from CalPERS own internal placement agent policy. The law requires disclosure of campaign contributions by placement agents to retirement board members; prohibits members from selling investments to other public pension funds; and increases the time that former board members and pension fund executives must wait before they can try to influence board actions.
CalPERS Board established in May an internal policy requiring its investment partners and external managers to disclose their retention of placement agents, the fees they pay them and the services performed. The policy also requires agents to register as broker-dealers with the U.S. Securities and Exchange Commission or the Financial Industry Regulatory Authority — or CalPERS will decline the opportunity to retain or invest with the external manager.
In addition, the law firm Steptoe & Johnson is conducting a special review of placement agents used by CalPERS investment partners.
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