CalPERS Seeks to Limit Banks’ Role in Mergers

The California Public Employees’ Retirement System, the largest U.S. pension fund with $177 billion of assets, asked the NASD to bar investment banks from providing fairness opinions on mergers for which they are advisors.

Banks such as Citigroup Inc. and Goldman Sachs Group Inc. should avoid making such judgments for shareholders because of the income they generate if a merger is finished, CalPERS Chief Investment Officer Mark Anson said in an interview Tuesday.

“It is a clear conflict of interest,” Anson, 45, said at the Institutional Fund Management 2005 conference in Geneva. “The best way to deal with it is to ensure that investment banks that already have a relationship don’t issue a fairness opinion.”

At the very least, banks should disclose potential conflicts of interest when issuing the opinions, Anson said. Investors then can decide for themselves how much those conflicts affected the advisors’ judgment. Anson said he didn’t have any particular cases in mind.

“They have to establish in a credible fashion why their opinion is objective when they are providing other services for the companies they are trying to value,” he said.