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Go-betweens got $125-million-plus from investment firms for arranging CalPERS deals

The disclosure by the pension giant prompts calls for greater oversight of those soliciting public pension money. Among the lobbyists disclosed is William Crist, a former CalPERS board president.

January 15, 2010|By Marc Lifsher and Stuart Pfeifer and David Zahniser

Reporting from Los Angeles and Sacramento — Private investment funds paid more than $125 million to scores of intermediaries who helped them win business with the California Public Employees' Retirement System, new documents show, prompting calls for stronger oversight of those who solicit public pension money.

The intermediaries, or placement agents, include three former CalPERS board members -- one of them William D. Crist, a longtime board president -- who lobbied the pension fund on behalf of an investment firm seeking a share of CalPERS' $205 billion in assets.

Pension experts say the disclosures are troubling, as lobbying by former board members could put pressure on CalPERS to put money with investment firms that charge excessive fees or that don't offer the best returns.

"The fact that people are being lobbied by people who have relations with current board members, even though they are former board members, is totally inappropriate," said Dave Elder, a former assemblyman from Long Beach who monitors CalPERS for public employee unions.

CalPERS made the disclosures Thursday in response to a state Public Records Act request from The Times and other news organizations. The fund, which manages retirement benefits for 1.6 million state and local government employees, retirees and their families, has also hired Washington law firm Steptoe & Johnson to investigate the use of placement agents.

"These are serious issues, and CalPERS is committed to reviewing them fully and fairly," said Philip Khinda, an attorney with Steptoe & Johnson. "Among other things, we're investigating whether the system was made to overpay or was misled."

CalPERS has invested in private funds represented by placement agents for more than 15 years, but the documents provided new details about the practice. Among the highlights:

* Former CalPERS board members Matt Fong and Crist were identified for the first time as pitchmen for investment funds. Fong served on the CalPERS board in his role as state Treasurer. Crist -- a retired economics professor at Cal State Stanislaus in Turlock -- was elected to the CalPERS board by state employees.

* Another placement agent named in the documents was Nicholas Smith, who served as an alternate to former State Controller Steve Westly on the CalPERS board. Smith, identified as an executive with Gold Bridge Capital, attended board meetings when Westly was unavailable to, according to state pension fund officials. He did not return calls for comment.

* The list of placement agents ranged from small independent firms to some of the biggest names on Wall Street, including Credit Suisse, UBS and Lazard.

* The No. 1 placement agent was Stateline, Nev.-based Arvco, led by Alfred J.R. Villalobos, another former CalPERS board member who was identified as a placement agent by CalPERS last year. Villalobos was paid $58.9 million for his work on behalf of private equity funds Apollo Group, Ares Capital and other firms, the records show.

CalPERS started reviewing payments to placement agents last year after a New York state pension fund scandal that included bribery allegations against some agents. With the release of the new documents, CalPERS Chief Executive Anne Stausboll called for reforms.

"Gathering information is not enough," Stausboll said. "We remain firmly committed to pursuing a full and fair examination that the special review will provide, and to backing legislation that would remove contingent fee arrangements and require placement agents to comply with the same rules as lobbyists."

Assemblyman Edward Hernandez (D-West Covina), who last year wrote legislation that put new restrictions on pension board members who work with private investment firms, said he would push for "tough legislation to end the shadowy involvement of placement agents and remove the greed factor from public pension fund investments."

The disclosures of payments over the last decade also heightened concerns about whether there is a revolving door at CalPERS, allowing former board members to trade their connections for big paydays.

Under California law, former CalPERS board members and staff are allowed to lobby their former employer two years after leaving the pension agency (the limit was previously one year), but some critics say the practice raises ethical concerns and has the potential for abuse.

"It really demonstrates the politicization of the investment decision-making process. It really is a way of greasing the palm of a well-connected insider," said Ted Siedle, a former Securities and Exchange Commission attorney who now works as a private pension consultant. "They're providing access, pure and simple, and there's no reason for it."

Crist was on the CalPERS board from 1987 to 2003, serving as president for 11 of those years. Since leaving the board, he has earned more than $800,000 in fees from London investment firm Governance for Owners, in which CalPERS has about $200 million invested, records show.

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