It’s About Time: NY To Abandon Sole Fiduciary

I’ve been critical of Andrew Cuomo lately (does accusing him of quasi-extortion count?), but it’s all flowers and laurels today. The AG done good.

Cuomo and a bi-partisan group of state legislators have written a bill that would eliminate the state pension fund’s sole fiduciary structure, and replace it with a board of trustees. It’s about time. New York is one of just two states that don’t have some sort of board structure, and it may not be coincidence that the other (Connecticut) also experienced a pay-to-play scandal related to private equity investments.

“For decades, the State pension fund has been weakened and corrupted by the sole trustee model,” Cuomo said in a prepared statement. “It’s about as sensible as having a single lock on Fort Knox. Today’s legislation will ensure that the fate of our public retirement fund isn’t decided by one individual, and that the entire system is rid of the kind of pay-to-play that infected and derailed it in the first place.”

There is also the reverse chicken/egg possibility — single fiduciaries don’t increase the likelihood of corruption, they just increase the likelihood of exposure — but we know that the current system in New York hasn’t worked. So change is needed, and hopefully this board’s integrity will be strengthened by another section of the bill that would codify Comptroller DiNapoli’s recently-established bans on political gifts.

It’s also important to note that this legislation includes codification of an existing ban on New York Common Retirement Fund from doing business with funds that use placement agents. I renew my objection to such umbrella language — plenty of honest placement agents do work that benefits both buyers and sellers — but that’s clearly a ship that has sailed in New York. As such, I don’t really see what the new law will do that hasn’t been done already (i.e., this isn’t a reason to oppose). 

Other co-sponsors of the bill include: New York Senate Majority Conference Leader John Sampson, Senator Brian X. Foley and Senator John Flanagan. You can download a copy of the legislation by clicking here (.pdf).

Update: I spoke to Sen. Foley, who said that the placement agent ban piece had broad legislative support, but that the fiduciary change was a much tougher slog. He’s even been asked (already) about splitting the bill, although he’s not there yet. Also said that while the bill is designed to codify Cuomo’s code of conduct, it would not preclude PE firms from using placement agents to solicit state pension funds outside of New York.