Placement agents reject Californian reform

The institutional pull of CalPERS and CalSTRS is not enough for placement agents to change their practices, with a study of global placement agents revealing discontent over new legislation which requires them to register as lobbyists if they are working with public pension funds in California.

A study by Preqin shows that the placement agents sruveyed are so adverse to the new requirements that 84 per cent said they would be prepared to rely less on public pension funds as a result of the legislation.

According to the study, the prohibition of contingency fees was the most cited cause of discontent, while 78 per cent of firms responding will not be immediately registering placement agents as lobbyists which is a requirement of the new legislation.

A new bill, AB-1743 came into effect at the beginning of this year, and requires placement agents working with public pension funds in California to adhere to strict reporting procedures, requires they attend ethics training in the state capital, and prevents them from making campaign contributions.

Specifically this bill “would prohibit a person from acting as a placement agent in connection with any potential system investment made by a state public retirement system unless that person is registered as a lobbyist and is in full compliance with the Political Reform Act of 1974 as that act applies to lobbyists”.

According to the survey, many placement agents said they felt they were being punished for the wrong doing of politicians.

It also found 92 per cent believed their expenses would increase as a result of the legislation.

Tim Friedman (pictured), head of communications at Preqin, said the prohibition of contingency fees was the most contentious aspect of AB-1743, with most respondents saying it was unfair they should work with no incentive.

Other states are also contemplating introducing similar laws, and this study found that 63 per cent of those surveyed would not register in any states if this happened, while 27 per cent would register selectively depending on the opportunities.

In March last year, the CalSTRS’ board supported this bill saying it enhanced transparency, and that it augmented CalSTRS current policy on ethical and fiduciary conduct and was in alignment with CalSTRS corporate governance policy.

However while the Teachers’ Retirement Board supported AB 1743, the board expressed concerns that there may be “unintended consequences to emerging managers and minority-owned firms and their ability to work with large investors like CalSTRS”.