Governor also instructs the State Investment Council to suspend alternative investments until new policies are in place
Gov. Bill Richardson has ordered the State Investment Council (SIC) to terminate its contract with a company tied to scandal in New York and New Mexico and to suspend all investments in anything other than stocks and bonds, his office announced late Wednesday.
The termination of the SIC’s contract with Aldus Equity follows an internal probe by the SIC into Aldus’ dealings in New Mexico and the FBI’s questioning of state officials about Aldus.
“At this time, we believe it is the most practical step for the investment office to take, given the realities of the current environment,” State Investment Officer Gary Bland said in a release. “Private equity is a critical asset class, and under existing circumstances, we feel it appropriate to forge ahead.”
Earlier this month, the SIC and Educational Retirement Board (ERB) suspended their contracts with Aldus, which has handled billions of dollars in investments for the state. According to the news release, the SIC will begin looking for a new private equity adviser and, in the meantime, will work with other, existing financial consultants on private equity investments.
Meanwhile, Richardson also ordered the SIC to halt what are called alternative investments — those in anything other than stocks and bonds — until “sweeping new investment policies” Richardson is proposing are approved by the SIC, the news release states. Under the changes, the state would require its investment managers to disclose all placement fees, marketing arrangements and other payments made to third-party marketers who help them secure state contracts.
“In the past few weeks, several serious questions have been raised regarding the arrangements between the state’s external investment managers and the marketers those investment funds pay to represent them,” Richardson, who chairs and controls the SIC, said in the release. “While this practice has been fairly common in the investment industry, the added potential for conflict of interests concerns me.”
Richardson’s proposed policy changes, which would apply only to the SIC, would expand on a bill he recently signed that, beginning in June, will require disclosure of third-party marketers from companies seeking to do business with the SIC, ERB and Public Employees Retirement Association on alternative investments.
The history
Aldus is involved in a scandal that has already led to indictments in New York and is growing in New Mexico. It’s one of several firms that allegedly agreed to pay kickbacks in exchange for business with the state of New York’s pension fund.
Another firm under scrutiny is Quadrangle Group LLC. The head of President Barack Obama’s auto-bailout program, Steven Rattner, was a managing principle in the firm until he left to take the government job in February. Though he hasn’t been charged with any wrongdoing, Rattner has been identified by national media outlets as the unnamed person in federal documents who allegedly arranged in late 2004 for Quadrangle to pay $1.1 million in exchange for business with the state of New York.
Hank Morris is one of two men under indictment in the New York case. He’s accused of using his position in that state’s comptroller’s office to shake down companies wanting to do business with the state’s pension fund. Morris is accused of taking 95 percent of the money from Quadrangle as a kickback. He denies the allegations.
Morris served as the third-party marketer who helped Aldus and Quadrangle win the investment deals in New Mexico. Rattner gave $20,000 to Richardson’s gubernatorial campaigns.