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U.S. Consultants Watch Out, Department of Labor Urged to Assess Conflicts of Interest

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In the United States, bearing mega responsibility, investment consultants are the gatekeepers and advisors to pension fund executives. U.S. Representative George Miller, D-California, has raised concerns about potential conflicts of interest from investment consultants who also act as asset managers. One example of this is Russell Investments which has a consulting arm and invests billions for public pension funds. The congressman from California, a ranking member of the Education and the Workforce Committee, penned the May 21 letter to the U.S. Labor Secretary Thomas Perez.

“As revenues and margins in the pension consulting business have come under pressure, it appears that more and more firms have sought to transition these relationships from a pure consulting model to one where the consultants step into the role of becoming a manager of the plans’ assets,” Miller inked in the letter.

The California Public Employees’ Retirement System (CalPERS) created a policy to not permit its investment consultants to manage any nonpublic assets in 2011. The California State Teachers’ Retirement System (CalSTRS) and the Washington State Investment Board both prefer investment consultants to be independent of money management.

2005 SEC Report

In May 2005, during an SEC investigation, agents found that a number of consultants accepted payments from money managers, even when the consultants offered advice about those managers to U.S. public funds.

The May 2005 SEC report said that: “Pension consultants” provide advice to pension plans and their trustees with respect to such matters as: (1) identifying investment objectives and restrictions; (2) allocating plan assets to various objectives; (3) selecting money managers to manage plan assets in ways designed to achieve objectives; (4) selecting mutual funds that plan participants can choose as their funding vehicles; (5) monitoring performance of money managers and mutual funds and making recommendations for changes; and (6) selecting other service providers, such as custodians, administrators and broker-dealers. Many pension plans rely heavily on the expertise and guidance of their pension consultant in helping them to manage pension plan assets.

In August 2012, after an investigation by the U.S. Department of Labor’s Employee Benefits Security Administration, found that USI Advisors, at the time a wholly-owned subsidiary of Goldman Sachs Capital Partners Co., allocated capital to mutual funds on behalf of ERISA defined-benefit plans. USI then received 12b-1 fees from those funds. By failing to disclose the receipt of 12b-1 fees to the plans and using those fees for the benefit of the plans, they were hit with a US$ 1,265,608.70 fine.

Follow the Money – Episode 45

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This longer-than-normal episode covers a wide range of issues including such as sovereign wealth funds, bitcoin, cryptocurrencies, Indian real estate, ESG, investment exclusions, central banking and more.

EPISODE 45

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The views in this media are expressed by Michael Maduell and other participants and are not reflective of the Sovereign Wealth Fund Institute (SWFI).

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CalPERS Board Elects Priya Mathur as Board President

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The board of the California Public Employees’ Retirement System (CalPERS) elected Priya Mathur as board president. The current president Rob Feckner was named vice president of the board. Feckner previously served as board president and vice president.

Priya Mathur is serving her fourth term on the CalPERS Board of Administration. Mathur is a principal financial analyst for Bay Area Rapid Transit District (BART). Mathur represents public employees on the CalPERS Board, which she joined in 2002. She currently serves on four committees: Governance, Investment, Pension & Health Benefits, and Risk & Audit. She chairs the Pension & Health Benefits Committee and is vice chair of the Governance Committee.

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Oman SGRF Contemplates $1 Billion Infrastructure Fund

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Oman’s State General Reserve Fund (SGRF) is in discussions on forming a US$ 1 billion infrastructure fund. [ Content protected for Sovereign Wealth Fund Institute Standard subscribers only. Please subscribe to view content. ]

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