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New guides aimed at guarding state pensions

Tuesday, November 05, 2002

By John M.R. Bull, Post-Gazette Harrisburg Correspondent

HARRISBURG -- One of the state's largest pension agencies has adopted new principles in how it deals with Wall Street money managers, a move designed to build retiree confidence that the fat cats aren't getting fatter on retiree pensions.

"I think it's critically important," said state Auditor General Robert P. Casey Jr., who pushed to have the new principles adopted. "This sends a message. You have these investment firms [handling state money] with all kinds of power. Doing these kind of things, that's the leverage these state pension funds have over them."

The State Employees' Retirement System, which invests $21 billion in employee pensions, mostly through professional Wall Street money managers, yesterday said it agreed to adopt a series of new investment principles required of companies that invest the system's pension funds.

The principles were adopted last month, but only revealed yesterday.

Most of the new principles were sparked by revelations that investment firms and stock analysts on Wall Street had conflicts of interests or secret agendas when deciding how to invest client money, and may have given misleading information to investors such as the state system.

Casey said the new principles are meant to prohibit the State Employees Retirement System board from using investment companies that may have hidden conflicts of interest.

The principles require that any company handling the system's pension funds do the following:

Sever any link between compensation for stock analysts with investment banking operations.

Create a review committee to approve stock or other investment recommendations given to investors.

Disclose if state pension funds are being invested in companies that are clients of the money managing firm.

Reveal how portfolio managers and research analysts are paid, specifically if compensation is based on acquiring or retaining new clients.

Establish a monitoring system to make sure its investment employees are following high ethical standards.

Pension funds in other states have adopted similar principles, and Casey said the system's board adopted many of the principles he suggested verbatim from a July 19 letter he sent giving suggestions on what should be done.

Casey suggested the two other state pension funds -- the Public School Employees' Retirement System and the Pennsylvania Municipal Retirement System -- adopt the same principles.


John M.R. Bull can be reached at jbull@post-gazette.com or 1-717-787-4254.

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