Money & Politics | Daily Report

CalPERS.ca.govPlacement agents must register as lobbyists to work with retirement funds like CalPERS; its Sacramento headquarters shown above.

A flood of financial services firms have registered lobbyists to comply with a new law enacted in the wake of public pension "pay-to-play" scandals in New York and California – even as state officials said they're already working on changes to the law seen as confusing and too broad.

A list compiled by the Capitol Morning Report from just two days of activity – Jan. 21 and Jan. 24 – includes 48 financial services lobbyists out of the 55 registrations with the California Secretary of State. The complete list is expected to be made public in a month.

The registrations were spurred by AB 1743 [PDF], which mandates that anyone who acts as a "placement agent" for California's public pension and retirement funds must register as a lobbyist with the Secretary of State. The law went into effect Jan. 1.

But it is unclear as to whether the influx of financial service registrations speaks to a close relationship between placement agents and public retirement and pension funds, or just confusion over who is considered a lobbyist under the new law.

Walter Hughes, chief of staff for state Sen. Edward Hernandez, D-West Covina, who introduced the bill, said that both conclusions could be correct.

“The purpose of this bill was to bring into public view the people who simply make an introduction and get paid for that,” said Hughes. “But we probably captured a few people that we never intended to.”

Hughes added that Hernandez plans to introduce a bill that will clarify AB 1743 within the next couple of weeks.

The legislation was born after pay-to-play scandals in New York and California, where the state's $200 billion public employee retirement system, CalPERS, is currently under federal investigation. Alfred Villalobos, a former CalPERS employee who became a placement agent, has been accused of providing gifts to pension officials in order to steer investments to money managers.

By expanding the definition of a lobbyist to include placement agents, such brokers are now prohibited from providing gifts worth more than $10 each month or accepting fees that are contingent on the success of their solicitations, among other restrictions. (Non-contingency fees are still legal under the bill.)

Bans on contingency fees for lobbyists have been in place since the 1950s, but until this year placement agents have operated out of the public's view and with relatively little regulation. Under the new law, financial services firms are not allowed to communicate with employees of the state's pension funds until they register.

The Secretary of State keeps a public database of most everyone involved in influencing the legislation or policy. Lobbyists and lobbying firms are required to report their clients, their quarterly fees, and which bills or issues they are opposing or supporting.

Some think the new California law is too broad, according to the New York Times:

A lot of the distaste has to do with simply being called a lobbyist. Hedge fund employees think it’s unprofessional. Placement agents think it’s inappropriate.

'We’re not going to be lobbyists because we’re not lobbyists,' said Charles Eaton, founder of C. P. Eaton Partners, a placement agency that has raised more than $33 billion from institutional investors. 'Frankly, some states that don’t have these arcane rules look down on anyone that would be a lobbyist.'

The new law captures a host of people who normally would not be required to register. It categorizes a placement agent as "A person, as defined, hired, engaged, or retained by, or serving for the benefit of or on behalf of, an external manager, as defined, to act as a finder, solicitor, marketer, consultant, broker, or other intermediary in connection with the offer or sale of the securities, assets, or services of an external manager to a public retirement system in California for compensation."

The confusion appears to extend to the agency that administers the law as well. When asked which funds beyond CalPERS and the California State Teachers’ Retirement System the legislation applied to, Roman Porter, executive director of the Fair Political Practices Commission, wrote in an e-mail that his staff was still discussing the matter and will propose clarifying regulations at a future commission hearing.

Wayne Davis, a spokesman for CalPERS, said he felt the law did contain some murkiness. “If it’s leading to people being more cautious, that’s probably a good thing,” he said. “But we’re definitely looking for more guidance.”

Lobbyists who registered last week included a variety of financial firms, including Winton Capital Management, Nuveen Investments Holdings, Allianz Global Investors, Credit Suisse Securities, State Street Bank and Trust Company, and MacGregor Global Investments.

The financial services firms that appeared on the list either did not respond to requests for comment or declined to speak on the record.