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National Probe on Public Pensions?
Submitted by Leo Kolivakis, publisher of Pension Pulse.
Martin Z. Braun and Erik Schatzker of Bloomberg report that Former SEC Chairman Levitt Calls for Probe of Public Pensions:
The
former head of the U.S. Securities and Exchange Commission said
President Barack Obama should empower a “blue ribbon” panel to
investigate pay-to- play at public pension funds that oversee more than
$2 trillion.
Arthur Levitt called for the panel after California’s
$200 billion pension fund disclosed that a former board member was paid
$50 million by private equity firms for successfully marketing
investments to the fund. The California Public Employees’ Retirement
System, or Calpers, called for a special review of fees paid to
middlemen to win state business.
“It’s
a national disgrace,” Levitt said in an interview on Bloomberg
Television. “It’s pervasive. It’s in pension funds all around America,
and people are being badly hurt by this.”
State
and federal prosecutors in New York and New Mexico are investigating
whether money managers illegally paid politically connected placement
agents and made political contributions for access to the retirement
funds. Carlyle Group, where Levitt is employed as a senior adviser,
paid $20 million to resolve a corruption probe by New York Attorney
General Andrew Cuomo. The firm wasn’t charged.
The SEC
already has proposed a plan that would prohibit firms from managing
assets for the $2.2 trillion in U.S. public retirement funds for two
years if executives gave money to an elected official that could
influence contract awards. The agency also wants to ban money managers
from hiring middlemen to solicit pension investments.
Proposed Rules
The
SEC recommendations resemble rules proposed by the agency in 1999, when
Levitt was chairman. The rules were never adopted.
“We
had a lot of pressure against it, threats to take us to court,” Levitt
said in a follow-up interview. The pressure came from Congress, Levitt
said. “When you talk about campaign contributions, Congress gets very
sensitive,” he said. “They feel that’s one step away from their own
activities.”
At the time, the SEC was also in the midst of bruising fights with lawmakers on auditor independence.
The
proposed panel, to be chaired by SEC Chairman Mary Schapiro, should go
beyond the agency’s current proposal and investigate the public
officials who sit on boards of state pension funds, Levitt said. It
should both highlight conflicts and recommend “best practices.”
Public
pension fund boards shouldn’t make investment decisions, Levitt said.
That should be left up to professional staff. Instead, boards should
focus on setting asset allocation policy, he said.
John Nester, an SEC spokesman, didn’t immediately respond to an e-mail seeking comment about Levitt’s proposal.
Calpers Investigation
Calpers
said it began a review of fees that investment managers pay to
middlemen after disclosures from investment managers that former board
member Alfred Villalobos was paid $50 million over five years.
Private-equity
funds run by Apollo Management LP, Ares Management LLC and Aurora
Capital Group paid fees to Villalobos’s company, Arvco Financial
Ventures, which he runs with his daughter Carissa, according to more
than 200 pages of documents obtained through a public records request.
Villalobos,
a one-time Los Angeles deputy mayor, was a Calpers board member from
1992 to 1995. Villalobos said he is cooperating with the Calpers review
and is confident that staff, advisers and board members of Calpers
acted properly.
Political Adviser
In
March, New York Attorney General Cuomo charged New York’s former chief
investment officer with illegally steering investments to firms that
paid millions in fees to Henry “Hank” Morris, a political adviser to
former state comptroller Alan Hevesi, a Democrat.
Four
others, including the former head of New York’s Liberal Party and a
Dallas-based adviser to the New York fund, have pleaded guilty to
fraud. Morris and David Loglisci, the former chief financial officer,
have denied wrongdoing. Hevesi hasn’t been charged.
According
to Cuomo, Washington-based Carlyle, the second- biggest private equity
firm after New York-based Blackstone Group LP, had “limited success”
obtaining investments from the New York pension funds until it retained
Morris in 2003. Afterward, Carlyle got about $730 million in total
investment commitments for private equity, real estate and
infrastructure funds.
In exchange, Carlyle paid about
$13 million to Greenwich, Connecticut-based Searle & Co., the
broker-dealer with whom Morris was registered. Searle paid most of the
fees to a shell company Morris established. Carlyle didn’t know that
that Searle paid most of the placement fees to PB Placement LLC,
Morris’s shell company.
Pleading Guilty
Cuomo
said Carlyle also didn’t know that Morris split the fees with Barrett
Wissman, a Dallas fund manager who has pleaded guilty to paying and
receiving kickbacks.Members of Carlyle, including
co-founder David Rubenstein, donated at least $118,000 to Hevesi,
according to New York campaign finance records.
Levitt
said he was “distressed” to learn of Cuomo’s investigation. He said he
helped Carlyle develop an ethics code with Cuomo.
As
part of its settlement, Carlyle signed a “code of conduct” with Cuomo,
which bans the firm from using middlemen to obtain investments from
public pension funds. The code also prohibits firms from doing business
with a fund for two years after the firm or its employees make a
contribution to a public official who can influence investment
decisions.
Marc Lifsher of the LA Times reports that CalPERS targets a former L.A. deputy mayor in probe of investment agent fees. I quote the following:
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....
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.In
May, CalPERS instituted a new disclosure policy requiring investment
funds to detail the activities of their placement agents. City
government pension funds in Los Angeles have adopted similar policies,
and Gov. Arnold Schwarzenegger recently signed legislation requiring
all public pension funds to disclose such information, beginning Jan. 1."The
placement agent industry has been a focus of state authorities and the
Securities and Exchange Commission over the last year, and we believe
it prudent to conduct a full review of the matters related to these
recent disclosures to us," said Anne Stausboll, CalPERS' CEO.
All
U.S., Canadian and global public pension plans should disclose dealings
with placement agents on their websites. Moreover, regulators should
ban firms from using middlemen. For every one good placement agent,
there are a hundred corrupt fools looking to line their pockets.
And
investigators should look beyond the board of directors and conduct a
thorough investigation to see if the investment staff are on the take.
It's not hard to have collusion among senior staff members to get an
investment pass through some investment committee. Considering the
enormous sums these public pension funds dole out every year to private
funds, there needs to be a lot more checks and balances.
»
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Part of the answer is Personal,Portable,Self-Directed,Registered,Segregated Retirement Saving Plans.
Employer contributions are made into these, rather than into a crime-bait fund.
40muleteam borax
"Considering the enormous sums these public pension funds dole out every year to private funds, there needs to be a lot more checks and balances."
The government can't leave crime-bait like this laying around without oversight and regulation. Not completely unrelated, Obama owes much of his rise from obscurity by the support from the sideline in this business of minority investment, which in Illinois I think they got increased to 19% of state funds.
Pension funds could invest in indexes. With a small part of the savings, maybe states could afford better protection of public retirement funds, especially because these funds will be bailed out by the taxpayer. Just like the banker bailout. They siphon. We pay. Not only does no one go to jail, it's legal theft.
HAHAHAHAHAHAAAAAAAAAA!!!
"The proposed panel, to be chaired by SEC Chairman Mary Schapiro,"
Fun facts about Mary Schapiro: Got paid by the SEC from 1988 to 1994. Chair of the CFTC from 1994 to 1996. 1996, magically became president of regulation at the NASD (now FINRA), 2002 vice-chair, 2006 chairwoman. Notable achievments – ??? Oh, she was also on the board of Kraft and Duke Energy. Didn’t say diddly when the uptick rule was repealed.
Pension's ...on a long enough timeline the survival rate drops to Zero. Churn baby churn
Is it not a relief to the public to hear from a true SEC crossover who gets paid by major media Bloomberg, Goldman Sachs, and the SEC.
Tell you what Mr. Levitt, you yourself are a live example of why the SEC is a truly failed organization.
It is clear sir that you do not stand for the public.
Clearly Mr. Levitt, the public surely does not want to listen to you. You are so conflicted you have no clue who you see when you look in your mirror.
business as usual..paying placement fees on top of insulting performance.
kinda like front-load mutual funds...get the performance advantages later but the investment company surely gets paid