CT's Nappier Adds Third-Party Manager Disclosures

May 4, 2009 (PLANSPONSOR.com) - The probe into potential pay-to-play misdeeds at the New York Common Retirement Fund continued to send shockwaves with word Monday that the state of Connecticut was instituting strict new disclosures and terminating its relationship with Aldus Capital, LLC.

Connecticut Treasurer Denise L. Nappier announced that all fund of funds managers are now required to provide an affidavit from each sub-fund manager, disclosing any third-party payments made by the sub-fund manager in connection with its engagement on behalf of the Connecticut Retirement Plans and Trust Funds (CRPTF). Nappier said the disclosure would be made public on her agency’s Web site, www.state.ct.us/ott/ .

Nappier is also extending the state’s third-party disclosure requirements to mandate that any managers disclosing payments to placement agents in connection with an investment contract with Connecticut disclose whether the placement agent, in turn, paid any sub-agents related to the Connecticut business. She said her actions are aimed at avoiding the situation like the one in New York in which placement agents paid sub-agents to get money management business with the Empire State pension program.

“Let me be clear:    We have no tolerance for ‘pay to play’ in Connecticut,” Nappier declared in her statement. “We are committed to full disclosure and transparency, and we will take all the steps necessary to protect our rights, interests, and the interests of the 165,000 participants and beneficiaries of the CRPTF.”

In addition to the new disclosures, Nappier said she had severed the state's relationship with Aldus Capital, LLC that has been named in several pay-to-play investigations around the country (see  SEC Putting More Focus on Aldus in NY Pension ProbeSEC Pension Probe Extended to L.A. Fund ).

"In my judgment, Aldus Capital cannot remain focused on its Connecticut engagement under these circumstances, and that is the reason for my taking this action at this time," Nappier said in the statement. "I commenced termination of Aldus Capital in order to protect Connecticut's interest out of an abundance of caution."

She said Aldus Capital was hired in June 2008 as a manager of small and emerging fund managers in the CRPTF's private equity asset class.  Connecticut committed $65 million to Aldus Capital and, of that amount, approximately $13 million has been committed to several sub-fund managers.

Nappier said that under existing Connecticut law, investment manager finders' fees are already banned and all legal third-party fees are fully disclosed.    Lobbyists are banned from representing firms seeking to do business with the Connecticut Treasury and that the Treasurer's Office is prohibited from directing the payment of fees to third parties.

New York state Comptroller Thomas P. DiNapoli several weeks ago banned use of placement agents in light of the investigation involving the Empire State fund (see  DiNapoli Bars Placement Agents for Empire State Fund ). Fund officials around the country have been taking similar steps (see LACERS Enacts Paid Agent Disclosure Rules ).