Legislators in favor of having middlemen register as lobbyists

By PAUL GLASSER Published:

Local legislators say they would support a recommendation to require investment middlemen who deal with the state pension fund to register as executive branch lobbyists.

The recommendation was one of 92 made in a report by Auditor Crit Luallen during an investigation of the Kentucky Retirement Systems. She presented her findings at a press conference Tuesday and to the joint interim committee on state government Wednesday.

The middlemen are known as “placement agents” and help funnel money into private equity investments that aren’t available for public trading. KRS didn’t pay the agents but hired fund managers who did.

The use of placement agents led to “pay to play” scandals in the New York and California state pension systems, but Luallen’s report found no evidence of wrongdoing here.

Committee co-chairman Rep. Mike Cherry, D-Princeton, said he will reintroduce during the 2012 legislative session a bill proposing reforms to the pension system that would likely include provisions requiring placement agents to register as lobbyists as well as other changes.

Rep. Derrick Graham, D-Frankfort, and Rep. Carl Rollins, D-Midway, say they would support such a bill. Both are vice-chairman of the state government committee.

Graham said it’s important that investment decisions at KRS be transparent.

“I think the public would demand we do it,” Graham said.

If placement agents are registered as lobbyists it would be easier to ensure there are no financial interactions among the agents, KRS staff or pension trustees, Rollins said.

“It solves a lot of problems,” he said.

Both also said they were pleased with the audit report in general, which included additional recommendations to improve oversight at the pension system. Rollins said the report clearly explained the role of placement agents and that they aren’t paid directly by KRS funds.

“The fees do not come out of our returns,” he said.

Jennifer Elliott, chairwoman of the KRS board, said Wednesday the report was “thorough and thoughtful.”

Sen. Julian Carroll, D-Frankfort, said he had not read the audit report and could not comment on the details.
KRS has assets totaling about $13 billion and provides benefits to about 330,000 active and retired state and local government retirees.

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