Are Securities Firms Pension Fund “Gatekeepers”?

We’ve discussed pay-to-play related issues, portfolio monitoring agreements and the lawyer-driven nature of securities suits where public pension funds are the nominal plaintiff. Edward Siedle’s recent article in Forbes is suggestive on these topics:

Another ethical swamp are the conflicts of interest that continue to surface involving the consultants who advise pension funds about which money managers to hire. The Securities and Exchange Commission, Department of Labor and state attorneys general are all investigating pay-to-play schemes involving these “gatekeepers.” At this point, there is absolutely no disputing that an unscrupulous pension consultant who corrupts the integrity of a fund’s investment process, for personal profit, can cause massive harm–far greater than the kickbacks he receives from the money managers. Yet I am perpetually amazed that most boards, even when confronted with the harm or damage will say, “We like him. He’s a good guy.”

Law firms may or may not advise their pension fund clients on which money managers to hire, but they certainly advise them on which class actions to pursue. Questionable campaign contributions along with contigency fee arrangements that leave the pension fund more or less where it was but earn the lawyers hundreds of millions in fees makes me wonder whether the firms themselves are the “gatekeepers” Siedle describes.

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Filed under: Law & Politics, Opinion, institutional investors, monitoring agreements, pay-to-play, pension funds, securities