As the private equity industry digested the latest eye-popping development in the ongoing kickback scandal at the
Critics have long argued that a single fiduciary system consolidates too much power over the state’s $120 billion pension assets in one person’s hands and encourages the kind of corruption that allegedly occurred there. “Shouldn’t there be a bigger board?” asked a managing director at one New York-based buyout shop. “Is [Cuomo] addressing the core issue here? The real issue here is, how are decisions being made?”
But Cuomo does not have the authority to implement changes at the pension because it is an independent trust, according to Robert Whalen, press secretary for New York State Comptroller Thomas DiNapoli, the sole trustee of the pension fund. The state would need a constitutional amendment, which would require approval by two successive legislatures and subsequent referendum vote by the public, to change the pension structure to, say, a board structure, Whalen said. That could take at least three years, he estimated, if the legislature began acting on it now.
Still, some industry professionals said Cuomo could use his position to at least push for reform at the pension. “I would think he could use his soap box [to push for reform], but he seems to be on a different path,” said Martha Coultrap, an attorney with Sullivan & Worcester LLP.
DiNapoli remains supportive of the single fiduciary structure, and Whalen noted that pensions with board structures—such as the
DiNapoli believes the single fiduciary structure has its benefits—namely a level of independence and accountability that doesn’t exist with a board structure. “The comptroller’s position is, if you want to have the conversation [about changing the pension’s management structure], let’s have it, but let’s be informed. Let’s not go into it thinking we’ll put a board in place and the problems will go away,” Whalen said. “That’s simplistic. That’s just not in touch with reality.”
DiNapoli has also increased the oversight of the investment process, Whalen said. Today, the process includes an initial assessment by an investment officer, followed by review by the pension’s consultants and attorneys, as well as a new internal committee made up of the heads of other asset classes—including private equity, hedge funds, and real estate—and finally the chief investment officer, before reaching the comptroller. Whalen, who did not work under Hevesi, said his impression is that the process was much more direct between the investment officer, the head of the private equity asset class, the CIO and the comptroller under Hevesi. “So [now] you have a lot of different eyeballs on it,” Whalen said. “I think in many ways that the review process from start to finish is as extensive a review as you’re going to get with any board.”
Meanwhile, placement agents and buyout professionals seethe at what they see as an Attorney General taking a heavy-handed approach to an issue he doesn’t fully understand in order to gain a political victory. “It’s just disgusting,” one placement agent told Buyouts, referring to Cuomo’s comparison of placement agents to Boss Tweed at a press conference announcing the Carlyle settlement. “It’s so misguided, and there are so many honest guys out there just trying to make a buck.” A managing director at another buyout shop said the research and expertise placement agents bring in terms of marketing his firm and knowledge of limited partner tastes is crucial, allowing him to concentrate on investing while his placement agent seeks investors. “Oh, there’s a new fund in Norway that likes firms in the Southeastern United States,” he said, as an imagined example of a placement agent alerting him to a new potential investor. “How the hell am I going to know that?”
Alex Detrick, press secretary for Attorney General Cuomo, did not respond to requests for comment.
Another question many buyout professionals are asking is how they’re supposed to solicit business from the pension. According to Whalen, there is no central contact prospective that GPs should deal with. They can call the general number for the pension (518-474-4003 ), ask for someone in pensions and investments, and go from there. “It my take a number of transfers, but you’ll get there,” Whalen said. General partners can also call Hamilton Lane, the pension’s private equity consultant, and Whalen recommended visiting the pension’s Web site as well.