Texas’s Teachers Pension Adopts Pay-to-Play Limits

By Darrell Preston

June 16 (Bloomberg) — Texas’s $77.9 billion Teacher Retirement System, the sixth-largest public pension fund in the U.S., has adopted a policy prohibiting pay-to-play by companies trying to win business managing investments.

As of July 1, those seeking management work from the fund will face disclosure requirements regarding placement agents and restrictions on the fees paid them, according to the new policy. The fund’s board adopted the policy at its June 12 meeting, said Howard Goldman, spokesman, in an e-mail today. Pay to play refers to the practice of exchanging cash with officials, frequently political contributions, in return for government business.

All investment decisions must be “based solely on the merits in conformity with fiduciary standards and applicable law,” the new policy states. The board asked its staff to obtain “full disclosure of all matters having the potential to harm” the system’s “reputation or the integrity” of its investment process.

New York Attorney General Andrew Cuomo and the U.S. Securities and Exchange Commission say they’re investigating agents and money managers who used ties to public officials and kickbacks to buy and sell access to pension funds.

Texas Teachers hasn’t had problems with payments to placement agents to get state business or pay-to-play issues by managers seeking business, Goldman said.

“Our new policy, which basically has formalized what we have been doing in the past, also provides guidance to staff to avoid potential unethical or unlawful conduct,” Goldman said.

Those seeking money management work from the Texas Teachers fund will have to disclose contacts with state officials and board members, reveal campaign contributions to elected state officials and name placement agents and reveal placement fees, according to a new questionnaire required of all investment managers.

The fund’s value has fallen 28.5 percent from $104.9 billion on Aug. 31, 2008.


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