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CalPERS board members endorse new lobbying rules

Legislation would scrap the pay system for agents who try to persuade the state's public pension fund to invest with their clients.

November 20, 2009|By Marc Lifsher
  • CalPERS board President Rob Feckner, with board member Priya Mathur at a meeting in Sacramento, directed his staff to draft legislation that would make placement agents subject to the same rules as professional lobbyists.
CalPERS board President Rob Feckner, with board member Priya Mathur at… (Robert Durell / For The Times )

Reporting from Sacramento — Board members at California's huge state pension fund offered support Thursday for a plan to register as lobbyists the controversial middlemen hired by private investment funds to help get lucrative business from public pension plans.

Reacting to continuing questions about possible influence peddling by these representatives for outside investment managers, several members said they backed the idea proposed by the board president of the California Public Employees' Retirement System, known as CalPERS.

No opposition was expressed, and board President Rob Feckner directed staff members to draft legislation that would make the middlemen, known as placement agents, subject to the same rules as the professional lobbyists who attempt to influence the Legislature, governor's office and state agencies. The CalPERS board is expected to formally endorse the plan at its December meeting.

The bill, he said, would be introduced in the Legislature by Assemblyman Ed Hernandez (D-West Covina), chairman of the Assembly Public Employees, Retirement and Social Security Committee.

"It is crystal clear, in fact, that we need stronger laws in California for placement agents to ensure full transparency and accountability," Feckner said.

Getting those laws enacted "should be as open a process over the next few months as possible," said Steve Cooney, a representative on the board for state Treasurer Bill Lockyer.

Feckner's proposal, first floated a week ago, would change drastically the way placement agents earn money. It would also require them to file quarterly reports of fees, gifts and honorariums, and prohibit them from making campaign contributions to CalPERS board members

Currently, placement agents earn fees based on a percentage of the investment commitment made to their clients by CalPERS and other public pension funds.

California's lobbying laws prohibit the payment of such "contingency fees." Lobbyists who work the statehouse and government agencies are paid flat fees or monthly retainers.

Placement agent fees can run into millions of dollars depending on the size of the transaction. One placement agent, former CalPERS board member Alfred J.R. Villalobos, made more than $70 million on about a dozen investments he helped broker at CalPERS and the California State Teachers' Retirement System.

It was the Villalobos payments that first caught the attention of CalPERS officials who were reviewing financial disclosure reports submitted by four investment funds that hired Villalobos. "Some of the very large fees paid to placement agents and the related allegations about relationships and possible improprieties have been startling," CalPERS Chief Executive Anne Stausboll told the board.

She apparently referred to Villalobos' hiring of her predecessor, Fred Buenrostro, to work at his Stateline, Nev.-based firm, Arvco Financial Ventures. While running CalPERS, Buenrostro signed official documents acknowledging he was aware of the fees paid to Villalobos by Apollo Management, an investment fund that got about $4 billion in business from CalPERS.

Stausboll and Feckner have contracted with a Washington law firm to conduct a "special review" of placement agent activities at the $200-billion pension fund.

"The purpose of the review is to make sure that CalPERS has not been victimized and that our members and stakeholders have not been wronged," she said. "If there has been any financial harm at CalPERS, we will seek appropriate remedies on behalf of the organization and our members."

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