Posted on: Friday, May 7, 2004
State pension fund adviser examined
By Deborah Adamson
Advertiser Staff Writer
The investment consultant advising the Hawai'i Employees' Retirement System is one of several pension consulting firms under examination by the Securities and Exchange Commission.
Government regulators have asked the San Francisco-based Callan Associates to supply information about how it chooses the money managers that it recommends to pension-fund clients and how well the managers disclose any conflicts of interest, Callan said in a statement.
A money manager may at times purchase products and services from a pension consultant, which could then recommend the manager to pension funds.
SEC spokesman John Nester said the federal agency has received complaints in the past about "pay-to-play" allegations.
"They may require money managers to purchase products and services from the consultant in order to appear on the consultant's short list" of recommended investments firms, he said. "These are serious allegations."
Callan Associates said in a statement that it "has never engaged in any pay-to-play practices." In 31 years, the company said, no client or regulatory agency has ever accused the firm of practicing "inappropriate influence" to provide services to clients.
Kimo Blaisdell, the chief investment officer of the state ERS, said Callan Associates does disclose its interest whenever "there's potential for conflict."
The consultant tells the ERS whether it has business relationships with money managers that it recommends, he said.
Nester said the SEC has received complaints from some money managers about certain consultants, but he declined to name them. The SEC also didn't disclose how many pension consultants are being scrutinized.
At this point, however, the agency is just conducting a review of practices from a sampling of pension consulting firms nationwide.
"It's a fact-finding review of their practices — the services they offer, manner they are paid and (their level of) disclosures," Nester said.
The examination could take more than six months.
The ERS' Blaisdell said money managers also go through a screening process. He said he reviews all the managers that don't make the list of recommended firms.
Whenever money managers have failed to make the list, he said, "I found out there's justification." For example, the ERS might require a money manager to have at least $100 million in assets under management employing a certain investment style.
It's a way to examine the investment firm's track record, Blaisdell said. Some firms fall short and don't win a recommendation.
Last November, the pension fund fired Putnam Investments after the company was charged with breaking federal securities laws. In April, Boston-based Putnam agreed to pay a $55 million fine for not disclosing improper market timing trading by portfolio managers. Putnam managed $440 million of Hawai'i public employees' money.
The ERS has hired Goldman Sachs and Ark Asset Management to take over from Putnam and Alliance Capital, which was fired in August 2003 for poor performance, Blaisdell said.
Alliance managed about $300 million in ERS assets. Goldman and Ark will each manage $375 million in assets under the large-cap growth investment strategy.
The pension fund has total assets of $8.6 billion for 93,000 government employees, retirees and beneficiaries.
Yesterday, the SEC also filed a civil fraud lawsuit against certain equity managers and a fund distributor for PIMCO, an investment firm in Newport Beach, Calif. The agency accused them of not disclosing market timing deals with Canary Capital Partners LLC.
PIMCO, which manages $930 million of fixed-income securities for the state pension fund, did not return calls for comment. Blaisdell said the accusations concern equity, or stock, investments and not fixed income or bonds. The ERS is monitoring the situation, he said.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
