Wednesday, April 7, 2010

Calpers, Placement Agents, and Corruption?

Bloomberg reports that Calpers and Blackstone are having a slight difference of opinion over whether money managers should be allowed to pay contingency fees to "placement agents." Placement agents work for private equity, hedge funds, venture capital and real estate firms, typically earning a the equivalent of 0.5% to 3% of the money they place under the management of their client. Calpers is introducing legislation requiring placement agents to register as lobbyists and ending what Bloomberg calls "pay-for-success" arrangements and I call "pay-for-doing-nothing." Apparently, Blackstone is not happy about abolishing the practice, as it has likely benefitted enormously from the bribing, er, paying of enormous fees to win huge chunks of Calpers money to manage over the years. Besides, there's nothing corrupt about paying $59 million in fees to a former Calpers board member for doing all of that hard work of calling his old pals at Calpers and asking them to part with large chunks of $209 billion in retirement assets so he can get paid. I'm sure that required like at least a five minute phone conversation:

Placement agent: Hello Harry? This is Charles!
Calpers Money Manager: Hey Charles, you old goat! How ya doing?
P A: Wanna go grab beers today?
Calpers guy: Nah, the wife'll get all mad.
P A: Ok, we'll do it some other time. By the way, any interest in our new private equity fund? It's the biggest fund we've ever raised. We're preparing to do a $100 billion takeover. You know, lever it up and then flip it via IPO. Works every time.
Calpers guy: Oh, great idea! Here's $1 billion.
PA: How about our new real estate..
Calpers guy: Oh definitely. Here's another billion. I gotta hop. It's 5:05 PM, gotta head home.

So yeah, that conversation was worth $59 million in retiree money. I'm sure all those funds are performing swimmingly too.


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