Lawmaker questions “fishy” fees on NM investments
SANTA FE, N.M. — A legislative committee leader called Tuesday for Gov. Bill Richardson to replace some officials in charge of state investments and members of oversight boards for New Mexico’s permanent and pension funds.
“Given the atmosphere and what’s happening in New Mexico, I don’t think the executive branch has done enough. I think the executive branch needs to ask for a complete cleaning of the house,” said Sen. John Arthur Smith, D-Deming, vice chairman of the Legislative Finance Committee.
His comments came as the committee reviewed the role of third-party placement agents by money management firms that won state investment business. The placement agents are at the heart of an alleged kickback scheme under investigation involving a New York state pension fund.
Lawmakers questioned the hefty fees paid to some placement agents on New Mexico investment deals. One politically connected Santa Fe broker, Marc Correra, shared in more than $15 million in fees.
“This feels strange. It smells fishy,” said Rep. Brian Egolf, D-Santa Fe, who cautioned that he was not making allegations of any wrongdoing.
State investment officials said they were largely unaware of the fees received by placement agents, which are paid by the firms that obtain deals to invest public money.
State Investment Officer Gary Bland said the focus of state officials has been on selecting quality potential investments — not on whether firms employed third-party marketers or how much they were paid.
“I’m not going to tolerate the implication that we’re doing something illegal or something slimy,” said Bland. “This has been an industry practice. The product that has come in has been exceptional and our performance is exceptional since we’ve been here.”
Correra’s lawyer, Ronald L. Rubin of New York, said Tuesday he could not comment without first consulting his client. Correra is the son of one of Richardson’s political backers, and he’s the part owner of a horse racing track and casino planned in Raton.
Bland is in charge of investments for New Mexico’s nearly $11 billion permanent funds. That’s overseen by the State Investment Council, which is chaired by the governor. The governor, administration officials and gubernatorial appointees account for a majority of the council’s members.
Smith, in an interview after the hearing, said Richardson should replace Bland and some members of the Investment Council and the Educational Retirement Board, which oversees a more than $6 billion educational pension fund. He specifically mentioned ERB chairman Bruce Malott and David Harris, who serves on the investment council. Harris is a top financial official at UNM and once worked for Richardson.
Smith did not allege any wrongdoing by state officials or oversight board members, but said, “What we have going in the state of New Mexico is a real atmosphere of suspicion.”
Malott and Bland are defendants in a whistleblower lawsuit filed by a former investment officer for the ERB. The lawsuit alleges that political pressures influenced the awarding of $90 million in investments, which later lost their value when global credit markets collapsed. Malott, Bland and other defendants have said the lawsuit’s allegations are false.
Federal investigators are looking at whether political contributions influenced the selection of a California firm as a financial adviser for transportation bond transactions in New Mexico. Harris ran the New Mexico Finance Authority when it put together the transportation financing package. Richardson has said there was nothing improper in how the state awarded the work.
Gilbert Gallegos, a spokesman for Richardson, said “the governor’s top concern is to protect taxpayer money, and he is confident that the SIC, in particular, has invested wisely and outperformed the vast majority of public investment agencies.”
Gallegos pointed out that Richardson had directed the SIC and ERB to fire a financial adviser, Dallas-based Aldus Equity Partners, which has been caught up in the New York pension scandal. The governor also has ordered a ban on the use of third-party placement agents.
Officials of the educational pension fund said there was a clause in ERB’s contract with Aldus that required the firm to disclose when any investment transactions involved placement agents. However, the company provided inaccurate or incomplete information, lawmakers were told.
Allan Martin, managing partner of NEPC, a Cambridge, Mass.-based pension consulting firm, said placement agents were sales agents and their use has been commonplace in the financial industry for decades. Some firms hire outside placement agents because they don’t have enough staff to market their investments across the country. However, he said the high fees have attracted “some less than desirable people” to become sales agents. A placement agent generally receives between 1 percent and 2 percent of the capital committed by an investor, according to Martin.
Before the New York pension scandal, Bland said, there was little reason for investment officials to ask about a firm’s use of placement agents or how much was paid in fees.
“Nobody asked because it was just part of the business,” said Bland. “We don’t know because, none of us I think in the industry on this side of the street, ever concerned ourselves with it. We don’t pay it so we didn’t concern ourselves with it.”
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