CalPERS launches placement agent probe

At issue is $50M in payments by Apollo and other firms

The California Public Employees’ Retirement System announced last week that it is probing fees paid by outside money managers to win its business, expanding a review of “pay-to-play” schemes at public retirement systems that has spread nationwide.

The $200 billion state pension fund said in a statement that its probe centers on payments of more than $50 million that outside managers made over a five-year period to ARVCO Financial Ventures, a firm headed by former CalPERS board member Al Villalobos, who served on the fund’s board between 1993 and 1995.

CalPERS said it has notified the U.S. Securities and Exchange Commission and California’s top law enforcement officer of its probe, adding that it will work with both as needed.

Spokesman Scott Gerber said California Democratic Attorney General Jerry Brown is pursuing his own review of middlemen used by investment managers seeking public pension contracts and is open to working with CalPERS, the SEC and others.

At issue for CalPERS is the role Villalobos’ firm played as a placement agent for investment institutions seeking the fund’s business. Villalobos could not be reached for comment.

The move by CalPERS followed news that Saul Meyer, founding partner of placement agent Aldus Equity Partners had pleaded guilty to taking part in a kickback scheme that corrupted how the New York State Common Retirement Fund chose investment managers. Four of the six individuals that New York State Attorney General Andrew Cuomo charged have pleaded guilty, while lawyers for the two others say they are innocent.

“The placement agent industry has been a focus of state authorities and the SEC over the last year, and we believe it prudent to conduct a full review of the matters related to these recent disclosures to us,” CalPERS Chief Executive Anne Stausboll said in a statement.

CalPERS spokeswoman Pat Macht said its managers reported fees to ARVCO for the seven funds managed by buyout firm Apollo Management, two funds managed by debt and equity firm Aurora Resurgence Management Partners and one fund managed by PE firm Ares Management. Macht said the probe is a larger effort at CalPERS to tally fees paid to placement agents for its business.

CalPERS this year also backed a state bill, which Republican Gov. Arnold Schwarzenegger has signed into law, to increase disclosure of payments to placement agents tied to its investments and those at the California State Teachers’ Retirement System. The bill also bars former CalPERS and CalSTRS officials from soliciting business at the funds for two years after leaving them.

“Ultimately we’re trying to develop a database … and to confirm that at the end of the day that CalPERS was not victimized by bearing these fees,” Macht said.

Villalobos is the second former CalPERS board member to be swept up in reviews of placement agents this year. In May, former board member Sean Harrigan resigned as president of the board of the Los Angeles Fire and Police Pensions fund, citing the SEC delving into his ties to a firm named in New York’s pension fund probe.

Harrigan had been a consultant to a Los Angeles placement agent firm referenced in New York’s indictment of Henry Morris, a onetime advisor to former New York Comptroller Alan Hevesi. Morris, whose lawyer says he is innocent, is accused of taking kickbacks to help firms win business with New York State Common.