Earlier this week, the fund’s board reviewed a proposed form CalPERS staff is developing to find out more about the financial relationships the fund’s consulting firms have with money managers, including whether the consultants accept brokerage commissions as a form of payment, Dow Jones reported.
Specifically, CalPERS would require a consultant to report the percentage of revenue it and its parent company receives from money managers, brokerage activity, tax-exempt institutional investors, and high net worth individuals. The pension fund also will ask whether consultants receive non-cash benefits or other perquisites from money managers in return for providing consulting or other services including software, conferences, and access to research databases.
CalPERS’ move to require the new disclosures follows the revelation earlier this year that the U.S. Securities and Exchange Commission has been probing potential conflicts of interest between consultants and money managers (See SEC Looks At Consultant, Pension Fund Relationship ). Alleged conflicts can take several forms. Managers can feel pressure to “pay to play” – a practice under which managers give kickbacks to consultants in exchange for recommending them to pension boards, critics have charged.
“Does the firm, its affiliates, or the ultimate parent of the firm accept soft dollars as a method of payment for service provided?” the proposed CalPERS form asks. “Once a client’s consulting fees are paid in full for a given year, how are the additional commissions allocated?” It asks consultants to list all services they provide, “the nature thereof, and the dollar revenue or percentages of total income that each service represents.”
SEC scrutiny of pension consultants is industrywide, and is considered an examination rather than a formal investigation. In December, the agency sent a letter to many consulting firms requesting a swath of information about their dealings during a 23-month period.
CalPERS employs a number of consultants, but Wilshire is its primary advisor. Last month, the pension fund named four other firms to a pool of consultants that advises it on special investment projects. It created the pool in 1999 to take on tasks over and above those handled by Wilshire. The firms are R.V. Kuhns & Associates, Inc. of Portland, Oregon; Strategic Investment Solutions of San Francisco; Pension Consultant Alliance of Encino, California; and Russell.
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