CalPERS has officially adopted a placement agent policy, in light of recent pay-to-play allegations at other public funds, and introduced an investment policy for leverage, as its total fund value increased to $177.5 billion as at April 23, up from $169.4 billion at the end of March.
The fund’s new placement agent policy requires external managers to disclose fees and other information about the placement agents they hire to seek CalPERS’ business.
One of the specifics of the policy is that placement agents must register as broker-dealers with the US Securities and Exchange Commission or the Financial Industry Regulatory Authority, or CalPERS would decline the opportunity to retain or invest with the external manager or investment vehicle.
Other requirements set out by the policy are: CalPERS investment partners and external managers must disclose their retention or placement agents, the fees they pay them, the services performed, and other information about their engagement; disclosed information must include agents’ identities, resumes of key people, description of compensation and services, copies of agreements, and if the agent is registered.
CalPERS board president, Rob Feckner, said the policy would help ensure that decisions were made solely on the merits of proposed investments with full transparency and disclosure.
“We want to know who’s being hired, how much they’re being paid, what they’re paid for, and who pays them,” he said.
Interestingly, Aldus Equity, one of the firms caught in the New York State Fund’s placement agent brouhaha, was shortlisted alongside Brock Capital, Ennis Knupp & Associates, and Pension Consulting Alliance as a private equity consultant for CalPERS. The latter two were subsequently shortlisted and asked to present to the investment committee on May 11.
Meanwhile the purpose of the fund’s leverage policy is to set a framework for identifying, measuring, managing and reporting various forms of leverage, including limits on some forms of leverage.
As part of the policy, use of leverage is prohibited unless expressly permitted in the relevant asset class or program policy; and except for unsettled loss positions on non-exchange traded contracts, direct debt, is prohibited unless authorised by the investment committee for a defined purpose.
Private real estate, infrastructure and forestland include limits on the use of non-recourse debt, and recourse debt is prohibited for investments in risk managed absolute return strategies or other programs that do not have complete transparency on all investment positions.
The asset allocation/risk management unit will be required to report to the investment committee on leverage.
The fund saw its total assets increase to $177.5 billion at the end of April 23, partly due to the expanded asset allocation ranges approved in the December 2008 investment committee meeting.
As at April 23, the global equity allocation was 13 per cent under the 56 per cent target but within the range; and there was a cash allocation of 5.3 per cent, compared to a 0 per cent policy target.
