The California State Assembly’s public retirement and investment subcommittee heard testimony today regarding Assemblyman Ed Hernandez’s (D-West Covina) controversial bill proposing limitations on contingency fees for placement agents.
While Assembly Bill 1743 has been sponsored by many big name Golden State officials such as Treasurer Bill Lockyer, Comptroller John Chiang and the $200 billion California Public Employees’ Retirement System (CalPERS) in the past, it was met with opposition today regarding the effects the restrictions would have on emerging markets and the placement agent industry on the whole.
Ultimately, if passed, Hernandez’s legislation would require placement agents to register as lobbyists before offering investment ideas to state public pension systems. It would also impose strict transparency guidelines for campaign contributions and gift limits.
One of the new opponents served to be the Blackstone Group, a leading international alternative asset management firm and independent financial advisory firm. It tapped full-service public affairs consultant California Strategies to speak on its behalf at the hearing.
Terry McGann, a partner in charge of legislative, procurement and regulatory advocacy services at California Strategies, told the six-member bi-partisan Public Employees, Retirement and Social Security Committee that its client is prepared to support the bill if “certain amendments are adopted by the sponsors and authors.”
McGann said that “certain unintended consequences” could be avoided if changes are performed. He noted that professional placement agents should not be deemed violators of ethical standards of behavior, success or contingency fees should work for the parties in a transparent and public process and that the integrity and success of emerging firms “could be permanently compromised” if the amendments are not made.
When asked by the Committee if Blackstone would be submitting any formal changes, McGann responded that Blackstone did not elect to “submit formal comments” but highlighted similar proposals made by the Securities Industry and Financial Markets Association (SIFMA).
Blackstone’s Managing Director of Public Affairs Peter Rose was not available for comment today. As of Sept. 30, 2009, the international firm had “amassed [a] total fee-earning assets under management of $96.3 billion,” its Web site said.
Additionally, SIFMA VP and Counsel Kim Chamberlain was also present. She noted that while the organization supports “most of the bill” it had “serious problems with the provision that prohibits lobbyists from accepting payments on a contingency fee basis.”
At its closing, Assembly Majority Leader Alberto Torrico (D-Fremont) and Committee Chairman expressed his reservation towards the emerging markets issue stating that he wasn’t “satisfied that it will not have an adverse impact on emerging managers.”
Hernandez agreed to “make a commitment” to look once again at the issue but said that he will not revisit or make any amendments in relation to the contingency fee issue after hearing questioning from San Francisco Assemblywoman Fiona Ma.