Need To Know

Banks Face Losing PE Arms

President Barack Obama’s proposed overhaul of the banking industry could result in banks having to part ways with their private equity arms, but a resurgent Republican party makes that prospect unlikely.

The proposal, designed to limit risk-taking on Wall Street, states that “ too many financial firms have put taxpayer money at risk by operating hedge funds and private equity funds and making riskier investments to reap a quick reward.” The proposal states that banks have been able to make these bets while benefiting from special financial privileges, such as deposit insurance, reserved only for banks. “These privileges were not created to bestow banks operating hedge funds or private equity funds with an unfair advantage.”

If Obama’s proposal became law as written, it would affect almost every major bank on Wall Street, including Goldman Sachs, JPMorganChase, and Credit Suisse. However the proposal comes as the Democratic administration, reeling from declining poll numbers and the unexpected loss of Ted Kennedy’s Massachusetts Senate seat, is pushing a more populist tone. Judging from the lack of unity on the Democrats’s part for financial reform, and the likely unwillingness of most Republicans to support Obama’s financial overhaul, it is highly likely this particular aspect of reform will be ditched or watered down.

Placement Agent Cashed In On CalPERS Ties

An analysis of more than 5,000 pages worth of documents the California Public Employees’ Retirement System recently released showed that ARVCO, the placement agency run by former CalPERS board member Alfred Villalobos, received far more in fees than any other placement agent. This is the latest development in the widening pay-to-play scandal that has also ensnared pensions in New York and New Mexico.

It was also recently reported that Pacific Corporate Group, a La Jolla, Calif.-based consultant and investment firm, had hired Villalobos to try to win it business from CalPERS and other pensions. This happened while PCG was advising CalPERS on a deal that Villalobos was marketing on behalf of Apollo Management. (CalPERS has since announced it is reviewing its relationship with Apollo).