corrupt placement agents -- 3/12/18

Today's selection -- from Public Pensions, Secret Investments by Chris Tobe. Nationally, a staggering $3 trillion in state and local pension funds are overseen by state employees. The largest such pension fund is CalPERS--the California Public Employees' Retirement System. In many instances, the Wall Street firms that desire to manage a portion of the states' pension funds hire individuals as "placement agents" to help them get business from these states. Those placement agents are in many cases individuals who have raised funds for politicians in those states or otherwise have connections, and as a result get preferential treatment. That preferential treatment often means that the Wall Street firms not only obtain the business but can charge high fees for their services. There is a growing movement to ban the use of placement agents:

"Alfred Villalobos, the indicted ex deputy mayor of Los Angeles, was paid over $50 million in placement agent fees. Villalobos just happened to take the California Public Employees' System (CalPERS) CEO Federico Buenrostro on private jet trips to the Middle East and Asia, and gambling junkets in Vegas. He even hosted and paid for the CEO's wedding at his Zephyr Cove, Nevada, mansion and helped provide Academy Awards tickets to CalPERS staff. When the CEO left CalPERS in 2008, he took a job working with Villalobos as a placement agent.

"While the SEC was dragging their feet, the U.S. Department of Justice indicted Villalobos in early 2013 for conspiracy to create and transmit fraudulent documents and committing mail fraud and wire fraud. Some still have many questions of how this fraud at CalPERS could have occurred. Hopefully this criminal indictment will turn into a conviction and send the SEC, Wall Street and their placement agents a strong message. This long expensive federal investigation possibly could have been avoided if the U.S. Securities and Exchange Commission (SEC) had not bowed under to Wall Street pressure and dropped its proposed national ban on placement agents in 2009.

"More civil litigation continues as well as Villalobos is suing Apollo, one of the managers he 'placed' for, as he scrambles for money to fund his own bankruptcy proceedings.

"Under considerable public pressure, the California board spent millions hiring a Washington, D.C., firm to do a lengthy examination and review. The CalPERS placement agent review concluded that: 'Moreover, the involvement of placement agents apparently led to pressure to accept external manager fees that may have been higher than they should have been' Note that following a review of placement agents at CalPERS, the pension was able to negotiate $215 million in fee reductions from alternative asset managers."



Chris Tobe, CFA, Editor: Ken Tobe, Contributor: Edward Siedle


Public Pensions, Secret Investments


CreateSpace Independent Publishing Platform


Copyright 2018 by Chris Tobe


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