CalPERS Adopts Reforms on Conflicts

The California Public Employees’ Retirement System adopted reforms at the urging of state Treasurer Philip Angelides that will require banks to root out potential conflicts of interest if they want to do business with the largest U.S. pension fund.

CalPERS, which manages about $140 billion, also said it will give “significant consideration” to the reforms in hiring money managers to pick stocks and bonds on its behalf, though it won’t necessarily make the reforms a condition of hiring.

Investors, regulators and lawmakers have stepped up calls for reform after the bankruptcy filings of Enron Corp. and WorldCom Inc., which cost pension funds billions of dollars.

New York and North Carolina and the California State Teachers Retirement System were the first pension funds to adopt measures to change corporate practices in July.

The states want brokers and money managers to adopt the conflict-of-interest rules Merrill Lynch & Co. agreed to in a May settlement with New York Atty. Gen. Eliot Spitzer, who accused Merrill of producing biased stock research.

The principles call for brokerages to separate analyst pay from investment banking revenue, create a committee to review and approve all stock recommendations and for brokerages to disclose whether they have been paid by companies they research.

Angelides, who sits on the CalPERS board, has asked brokerage firms to state that they plan to comply by the rules by Sept. 15 and to provide details about how they will enforce the guidelines by December.

Ted White, CalPERS director of corporate governance, said the staff will send a copy of the guidelines to money managers asking them how they would comply.