US - The former head of the U.S. Securities and Exchange Commission said President Barack Obama should empower a "blue ribbon" panel to investigate pay-to- play at public pension funds that oversee more than US$2trn, Bloomberg reported.
Arthur Levitt called for the panel after California's $200 billion pension fund disclosed that a former board member was paid $50 million by private equity firms for successfully marketing investments to the fund. The California Public Employees' Retirement System, or Calpers, called for a special review of fees paid to middlemen to win state business.
"It's a national disgrace," Levitt said in an interview on Bloomberg Television. "It's pervasive. It's in pension funds all around America, and people are being badly hurt by this."
State and federal prosecutors in New York and New Mexico are investigating whether money managers illegally paid politically connected placement agents and made political contributions for access to the retirement funds. Carlyle Group, where Levitt is employed as a senior adviser, paid $20 million to resolve a corruption probe by New York Attorney General Andrew Cuomo. The firm wasn't charged.
The SEC already has proposed a plan that would prohibit firms from managing assets for the $2.2 trillion in U.S. public retirement funds for two years if executives gave money to an elected official that could influence contract awards. The agency also wants to ban money managers from hiring middlemen to solicit pension investments.
The SEC recommendations resemble rules proposed by the agency in 1999, when Levitt was chairman. The rules were never adopted.
"We had a lot of pressure against it, threats to take us to court," Levitt said in a follow-up interview. The pressure came from Congress, Levitt said. "When you talk about campaign contributions, Congress gets very sensitive," he said. "They feel that's one step away from their own activities."
At the time, the SEC was also in the midst of bruising fights with lawmakers on auditor independence.
The proposed panel, to be chaired by SEC Chairman Mary Schapiro, should go beyond the agency's current proposal and investigate the public officials who sit on boards of state pension funds, Levitt said. It should both highlight conflicts and recommend "best practices."
Public pension fund boards shouldn't make investment decisions, Levitt said. That should be left up to professional staff. Instead, boards should focus on setting asset allocation policy, he said.
John Nester, an SEC spokesman, didn't immediately respond to an e-mail seeking comment about Levitt's proposal.
The top stories this week were the High Court's decision to block the £12bn annuity transfer from Prudential to Rothesay Life, and a separate court ruling that 'raises the bar' for pension rectification exercises.
Guaranteed minimum pension (GMP) equalisation has soared to the top of pension schemes' to-do lists, with 58% stating it is a priority project, research from Equiniti has revealed.
Professional Pensions is holding its defined contribution (DC) conference on 4 September.