Home ListingFebruary 11, 2014

Placement Agent Fee Millions Scrutinized at NC Pension

An investigation into the third largest US public pension fund has allegedly revealed an excess of $100 million paid to placement agents in the past five years.

Reported by Featured Author

(February 11, 2014) — Problems with placement agents and management fees continue to plague the North Carolina public pension system—this time with transparency issues.

A month into a forensic investigation of the $83 billion pension fund, the State Employees Association of North Carolina (SEANC) expressed its dissatisfaction with Treasurer Janet Cowell’s supposed lack of cooperation in a letter: “To date, your office has failed to provide the overwhelming majority of the most critical investment information we have requested.”

Ardis Watkins, SEANC’s legislative affairs, told aiCIO that the organization’s public records request was largely unanswered.

“We still don’t know where significant Teachers’ and State Employees’ Retirement System (TSERS) assets are being held, much less how the money is actually being invested,” she said. “We still don’t know what we’re paying people. There is no quantifiable number of what’s paid to placement agents.”

According to Ted Siedle, president of Benchmark Financial Services and lead investigator of North Carolina’s fund, there’s an excess $100 million in placement agent fees he has found so far.

“This number was based on the fact that about 20% of the fund is invested in alternatives and 50% of those investments pay for placement agents, with fees of 1% to 2%—a figure the treasurer has disclosed publicly,” Siedle told aiCIO. “It’s an astoundingly high number.”

Despite claims of lack of cooperation, Treasurer Cowell’s office provided SEANC with 2,042 pages of documents, according to a letter addressed to SEANC Executive Director Dana Cope on January 28, 2014. The documents included information about investment advisory contract, fees—including those paid to placement agents and other intermediaries—and correspondence to securities regulators or law enforcement agencies regarding TSERS’ investments.

“The department communicated that we would provide the requested documents on a rolling basis, so that documents will be sent over time when gathered and reviewed,” Schorr Johnson, the treasurer’s spokesperson, told aiCIO. “Since the January 10 request, we have already provided many pages and are continuing to work to complete the request in as timely a manner as possible.”

The pages of documents have sparked another issue of transparency, said Watkins. The treasurer’s office had redacted a “portion of response detailing compensation paid by external investment manager to its placement agent” for 13 alternative investments, including those with Terra Firma Investments, CrossHarbor Capital Partners, and Halifax Investment Management.

“You have indicated that with respect to thirteen alternative investments made by TSERS, the external managers involved have been permitted to designate the compensation arrangements they have entered into with named placement agents as ‘trade secrets’ under North Carolina law,” Cope wrote. “Even more disconcerting, you have allowed three external investment managers to designate their entire disclosure letters as ‘trade secrets,’ resulting in both ‘mystery’ placement agents and unknown compensation.”

Siedle said calling certain placement agent fees “trade secrets” is a dangerous game. “What’s the secret? Is it really sensitive information? I have never seen any other public pensions mention trade secrets in this regard.”

The treasurer’s spokesperson Johnson said he had no comment on the issue.