MassPRIM’s CIO Says Pay-to-Play Regulation Is Not a Focus for Discussion

While MassPRIM told ai5000 that they are not currently taking action following the unanimous vote late last month by the SEC to curtail so-called “pay-to-play” schemes, a variety of public pension funds are working to adopt policies limiting the use of placement agents.

(July 13, 2010) — Despite the fund being scrutinized by the public eye earlier this year regarding questions of pay-to-play, Chief Investment Officer Stanley Mavromates of the Massachusetts Pension Reserves Investment Management (MassPRIM) told ai5000 that the issue is not an imperative topic of discussion for the fund.

New regulation by the Securities and Exchange Commission (SEC) aimed at curtailing pay-to-play practices limits political donations by investment advisers, reflecting a growing concern that such practices were causing public plans and their beneficiaries to receive subpar advisory services for excessive fees. The regulator’s recent action also highlights an increase in enforcement efforts by the SEC against investment advisers, placement agents and government officials who were involved in illegal kickback schemes in association with public funds.

While MassPRIM told ai5000 that they are not currently taking action following the SEC’s decision, a variety of public pension funds, such as the California Public Employees Retirement System (CalPERS) and the New York State Common Retirement Fund, have adopted (or are working to adopt) policies limiting the use of placement agents by the investment advisers that desire to do business with such funds. Many of these public funds have provided comments to the SEC on its proposed rule.

“We’re supposed to brief our board on pay-to-play, but we don’t view the SEC’s decision with any more importance than anything else the SEC has ever done – the new regulations may or may not be talked about at our board meeting to find out if the board wants to do anything differently,” said Mavromates, referring to MassPRIM’s next board meeting on August 3.

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In March, MassPRIM Treasurer Timothy P. Cahill was criticized for reportedly accepting more than $100,000 in contributions from across the country from real estate lawyers, property managers, and realtors, all dedicated to his election for governor, revealing a popular practice that many say crosses ethical lines and presents a conflict of interest.

Mavromates, who has worked with the fund for more than 10 years, serving as CIO for nearly half of that time, said MassPRIM staff is informed of pay-to-play conflicts of interest and is expected to abide on an honor system. “We don’t have a stance on pay-to-play,” he said, adding that the fund’s disclosure form for staff is identical to the form used when he started at the fund a decade ago, excluding minor changes to details about compensation arrangements with third party marketers. “From a decision-making point of view, the SEC’s decision doesn’t change our decision-making process at all,” he said.

Under the SEC’s new rule, if investment advisers or employees of an advisory firm contribute to a politician with hiring influence, they cannot be paid to the pension fund for two years. Additionally, the rule prohibits advisers from bundling donations from other people or political action committees for the officeholder or a party.

SEC Chairman Mary Schapiro said pay-to-play arrangements “reward political connections rather than management skill,” and foster fraud and corruption.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

Despite BP's Hopes for SWF Backing, Abu Dhabi Is Hesitant

BP Chief Executive Tony Hayward’s tour of the Gulf last week increased speculation that the company is looking for investment from sovereign wealth funds (SWFs) and other state entities in the region, yet Abu Dhabi is reluctant to invest in the company, a report said.

(July 12, 2010) — BP’s chief Tony Hayward was thought to have  sought investment from sovereign wealth funds when visiting the gulf state last week, but Abu Dhabi is reluctant to invest in the British oil company.

The Abu Dhabi Investment Authority (ADIA) is considered the world’s largest SWF with assets of more than $600 billion. The Middle East Economic Survey, published today, reported that it “understands that Abu Dhabi has signaled a reluctance to buy into BP.”

The survey stated that investment funds may be apt to monetize some of BP’s holdings in the region granted they avoid problems with the US Department of Justice, which has requested it be kept informed of BP asset disposals and other large transactions, the publication reported.

After BP’s stock dropped by 50% since the start of the Gulf of Mexico disaster, the firm has been reportedly turning to SWFs in the Middle East and Asia (Abu Dhabi, Kuwait, Qatar and Singapore) to guard itself against takeover bids. On Wednesday, BP’s Hayward visited Abu Dhabi in what one BP investor described to the Wall Street Journal as an international “charm offensive,” with a goal of reassuring investors and rebuilding confidence in the value of BP’s share price. Yet, the CEO declined to directly comment on whether he was approaching SWFs for support. The Dow Jones Newswires said the CEO conducted talks with Abu Dhabi’s crown prince, Sheikh Mohammad bin Zayed al-Nahayan, and discussed the possibility of the emirate taking a 10% equity stake in BP.

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“BP is seeking a strategic partner so it doesn’t get taken over by other major oil companies such as Exxon and Total,” an anonymous source said to Reuters. “It’s BP that is approaching the sovereign wealth funds not the other way around. They are the ones in need of a partner.”

The oil giant said recently that the cost of the Gulf of Mexico spill has hit $3.5 billion.



To contact the <em>aiCIO</em> editor of this story: Paula Vasan at <a href='mailto:pvasan@assetinternational.com'>pvasan@assetinternational.com</a>; 646-308-2742

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