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CalPERS begins 'special review' of fees paid to agents

The so-called placement agents help outside funds win investment management contracts with the pension system for California public employees, the nation's largest pension fund.

October 15, 2009|Marc Lifsher

SACRAMENTO — A former Los Angeles deputy mayor is at the center of an investigation by the California Public Employees' Retirement System into fees paid to agents who help private firms land large contracts to invest the $200-billion pension fund's money.

The fund, known as CalPERS, is looking at $50 million in fees paid in recent years to Arvco Financial Ventures, headed by Alfred Villalobos, 66, who was deputy mayor of Los Angeles for five months in 1993.

Villalobos, who was also a member of the CalPERS board from 1993 to 1995, is a so-called placement agent, or intermediary. His company has helped direct hundreds of millions of dollars in CalPERS money into private investment funds with vast holdings.

In a statement Wednesday, Villalobos denied any wrongdoing and pledged to assist CalPERS, the nation's largest public pension fund, in its investigation.

Placement agents generally are paid a fee of 1% to 2% of the value of deals by the private-equity investment firms. The agents rely on their sometimes long-term relationships with CalPERS and other pension systems to persuade officials to do business with their investment fund clients.

In the last year, placement agents have come under investigation as part of wide-ranging probes into alleged bribery and kickbacks in the awarding of pension fund investment contracts that include California and New York state.

CalPERS said it would share its findings with the Securities and Exchange Commission and the California attorney general's office.

New York Atty. Gen. Andrew Cuomo is conducting a separate criminal investigation of placement agents.

In Los Angeles, two local pension board members resigned in May after getting letters of inquiry from the SEC that asked them whether they had dealings with three placement firms being scrutinized in the New York probe.

The controversy over placement agents comes during a period of heightened pressure on CalPERS. The giant pension fund, which manages retirement benefits for about 1.6 million government workers, retirees and their families, has lost about a fifth of its value since hitting a peak of $247.7 billion in the middle of 2007. Many of the investments touted by Villalobos have lost money in the recession-racked economy.

As part of its inquiry, the CalPERS board said it was conducting a "special review" of more than $50 million in fees paid to the Stateline, Nev., company run by Villalobos.

The investigation, being conducted by a Washington law firm, is focusing on help that Arvco provided top investment managers in New York and Los Angeles in winning lucrative contracts with CalPERS.

In a conference call, Villalobos said that Arvco "doesn't make recommendations to CalPERS or any other investors." Rather, it presents "investment opportunities to them."

Investment recommendations and many decisions are the province of CalPERS investment staff and outside consultants, he said.

Arvco is well connected in the political and financial world that CalPERS inhabits. In August, Arvco hired Fred Buenrostro, CalPERS' chief executive for six years until he retired in 2008. Buenrostro served with Villalobos on the CalPERS board from 1993 to 1995.

Villalobos' daughter, Carrissa M. Villalobos, worked as Arvco's general counsel earlier this year, according to her resume. She said Wednesday that she was no longer connected with the company.

According to the disclosure documents released by CalPERS under the California Public Records Act, Arvco said it could assist investment managers in doing business with a number of public pension funds besides CalPERS. It listed the Los Angeles Fire and Police Pensions, the California State Teachers' Retirement System, the New York State Common Retirement Fund, the Washington State Investment Board and 13 others.

In May, the New York Times reported that Villalobos earned $100,000 for brokering a $1-million investment deal for client Craton Equity Partners with New York State Comptroller Thomas DiNapoli in 2007.

An investigation by New York's Cuomo and the SEC led to criminal indictments of placement agents in New York and Dallas.

CalPERS said it opted to look at the fees paid to Arvco and other placement agents by private funds run by Apollo Management of New York, Ares Management of Los Angeles and Aurora Capital Group of Los Angeles.

An Apollo spokeswoman said her company "is comfortable with its prior consulting engagements." Ares said in a statement that it did only one deal with Arvco in 2003, paying it $1 million, which represents 1% of the original CalPERS investment. "Ares has not used any placement agents in any subsequent fundraising activities in front of CalPERS," the firm said.

Aurora, which lists as a partner Gerald Parsky, an influential Republican businessman who is chairman of a state tax reform commission, did not return calls.

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