Pa. Pension Embraces 'Merrill Lynch Principles'

November 4, 2002 ( - The Board of the Pennsylvania State Employees' Retirement System (SERS) has joined officials in New York, North Carolina, Florida, and California in adopting money manager conflict of interest requirements.

The so-called “Merrill Lynch principles” covering investment managers handling pension funds include:

  • severing the link between compensation for analysts and investment banking
  • prohibiting investment banking input into analyst compensation
  • creating a review committee to approve all research recommendations
  • requiring that upon discontinuation of research coverage of a company, firms will disclose the coverage termination and the rationale for such termination
  • disclosing in research reports whether the firm has received or is entitled to receive any compensation from a covered company over the past 12 months
  • establishing a monitoring process to ensure compliance with the principles.

“The adoption of these principles will send a strong message to investment advisors and money management firms that if they wish to play a role in managing the pension funds supporting retired Pennsylvania teachers and government employees, they will be expected to adhere to the highest of ethical standards,” Pennsylvania Auditor General Robert Casey Jr. said in a letter to SERS urging the principles be adopted.

New York, North Carolina and California officials also adopted a series of requirements for money mangement firms handling pension assets including mandating the investment managers consider a firm’s corporate governance policies before deciding whether to invest in it. (See   Pension Funds Put Money Managers on Notice ).