Two Money Management Firms End Use of Placement Agents With CalPERS

(June 17, 2010) — Relational Investors LLC and Ares Management LLC have agreed to stop using so-called placement agents and reduce the management fees they charge the California Public Employees’ Retirement System (CalPERS).

San Diego-based Relational, the shareholder-activist fund run by Ralph Whitworth, will cut $30 million from its fees over five years, while Los Angeles-based Ares will trim $10 million during the same period, according to letters by CalPERS’ outside counsel obtained by ai5000.

Additionally, both firms have agreed to cease attracting business from the fund giant through the use of middlemen, or placement agents, which have encountered intense scrutiny in recent months. CalPERS and state officials have said the fee system causes corruption and the fund has expressed urgency to eliminate incentives that spurred allegations of influence peddling, leading the U.S. Securities and Exchange Commission (SEC) to investigate fees paid by money managers to middlemen. CalPERS has revealed the top 10 placement agents working with the fund were paid more than $125 million by money-management firms over the past 15 years.

“CalPERS has been pulling out all the stops to make sure no fund has to use placement agents to do business with us,” CalPERS spokesperson Clark McKinley confirmed with ai5000.

The California fund has been one of the leading supporters of revised guidelines for institutional investors proposed by the Institutional Limited Partners Association (ILPA), which aim to give fund clients more rights while reducing fees. The ILPA guidelines reflect an evolving relationship between private-equity firms and their investors, according to McKinley.

In April, Apollo Management agreed to cut $125 million in fees for funds it solely manages for CalPERS, its oldest and largest investor, while dropping the use of placement agents to attract business from the fund giant.