US - The US$181bn California Public Employees' Retirement System (CalPERS) has adopted a new conflict of interest policy governing investment consultants on the back of a Securities and Exchange Commission (SEC) sweep investigation which found more than half of the consultants targeted have "ongoing conflicts of interest".
The investigation also found investment consultants are failing to adequately disclose to their pension fund clients their business relationships with money managers and broker-dealers.
CalPERS’ said its new policy requires current consultants to identify “any future circumstances that may create actual, potential or perceived conflict of interests” before providing investment advice, including a recommendation on a money manager. The enhanced disclosure will be required of potential consultants as part of the bidding process.
“This policy is designed to ensure that CalPERS investment advisers are giving advice that is solely in the interest of CalPERS members and beneficiaries and is not influenced by the advisers’ own financial interest,” said Rob Feckner, president of the pension fund’s board.
“It will help us identify future problems and provide tremendous confidence to our members and the public that investment advice adheres to the highest standards.”
Under the CalPERS policy, a conflict exists when a consultant “knows or has reason to know that he or she, his or her spouse, or a close relative, domestic partner or other significant personal or business relationship, has a financial or other interest that is likely to bias the consultant’s advice to the fund”.
Included in the policy are internal protocols assisting staff to identify conflicts and manage them to prevent these conflicts from resulting in an actual conflict in the future.
The SEC report found more than half of the 24 pension consultants investigated or their affiliates serviced both pension plan advisory clients and money managers and mutual funds on an ongoing basis.
Currently, the pension fund relies on Statement of Economic Interest disclosures, SEC filings and disclosures by consultants during the contract process. The fund has about 28 consultants advising it on its investment portfolio.
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