California lawmakers are preparing to wage battle with so-called placement agents, a rather secretive group that helps money managers win business from the California Public Employee Retirement System, and other pension funds.
As described in today's editorial, Assemblyman Ed Hernandez, a Democrat from Baldwin Park, is carrying a bill on behalf of CalPERS that would force placement agents to register as lobbyists, and comply with all the same laws.
Through their trade groups, the placement agents appear willing to accept most regulation, with one big exception--the way they get paid.
As it is, they collect pay based on their success. They like that system fine. One placement agent, former CalPERS board member Alfred Villalobos, has received $60 million in fees for his work helping money managers win CalPERS business, as The Bee's Dale Kasler wrote in this profile.
The Securities Industry and Financial Markets Association said in a statement that it is "opposed to the lobbyist prohibition on contingency fees.
"Securities sales are paid on a contingency fee basis, so a contingency fee prohibition amounts to a placement agent ban. Such a ban would limit the state's ability to tap a diverse group of investment opportunities, including smaller minority and women-owned investment funds, and could keep state pension funds from investing in the best possible investment strategies for their plan participants--the people of California."
But for six decades, California has prohibited lobbyists from receiving pay based on whether they "succeed." It is one of 38 states that have such prohibitions, according to the National Conference of State Legislatures.
The prohibition dates back to 1949.
Back then, the legendary cigar-chomping lobbyist Artie Samish made the blunder of bragging to Collier's Weekly that he was the "governor of the legislature." He even posed for what became the cover phone with a ventriloquist's dummy, suggesting that he was pulling the strings. To prove him wrong, the legislature passed several reforms.
Back in 1974, UCLA law professor Daniel Lowenstein and Bob Stern, head of the Center for Governmental Studies, worked for then Secretary of State Jerry Brown who directed them to write what became the Political Reform Act.
"Jerry Brown hired me to write the best possible law," Stern said.
They began by looking at the existing law.
"There were provisions we were not going to change," Stern said, recalling that the ban on success-based fees dated back to the Samish-era reform and was not worth changing. "We didn't want to weaken existing law."
Placement agents will be working the Capitol halls to kill Hernandez's bill, or at least amend it so they can collect pay based on their success. Some will even hire lobbyists to do their bidding.