Matchmaker, matchmaker make me a match – unless it’s a public pension…

Matchmaker, Matchmaker,
Make me a match,
Find me a find,
catch me a catch.
Matchmaker, Matchmaker,
Look through your book,
And make me a perfect match.

Matchmaker, Matchmaker,
I’ll bring the veil,
You bring the groom,
Slender and pale.
Bring me a ring for I’m longing to be,
The envy of all I see.

In strictly Orthodox Jewish circles (and in the well-known play and movie Fiddler on the Roof), dating is pretty much limited to a search for an appropriate marriage partner. Both sides of the prospective partnership typically make inquiries on such matters as character, intelligence, level of learning, financial status, appearance and level of religious observance. But beyond family and friends, the search often falls flat, which is where a so-called shadchan comes in. Seen as a blessing, a shadchan is a professional who charges a fee to bring a couple with all the right credentials together in marital and familial bliss.  If the pairing works out, everyone’s happy. If it doesn’t work out, the shadchan goes back to the drawing board and gives it another whirl.

When it comes to the world of hedge funds, the equivalent of a shadchan’s job just got a heck of a lot harder – at least in the sunny state of California. And none of them aren’t happy about it, according to a recent survey conducted by Preqin.

The reason is a little something called AB-1743, which came into effect on January 1st. In a nutshell, the act prevents any placement agent (i.e. third-party marketer or shadchan) from soliciting funds from either CalPERs (“California State Public Employees’ Retirement System”) or CalSTRS (“California State Teachers’ Retirement System”), unless they are registered as a lobbyist (click here for’s past coverage).

In theory, the act is supposed to assure that all investments in hedge funds are done impartially, that there are no marriages where either the bride, the groom or the shadchan are benefitting in ways they shouldn’t be. The legislation was passed in response to investigations into alleged corrupt practices involving the use of “placement agents” with respect to public retirement systems or pension funds. For their part, the shadchans are crying foul: Noting by a fairly large majority, most of them it is unfair to be forced to follow strict guidelines that purportedly will make them more ethical and responsible.

Problem is, other states beyond California could easily and quickly follow suit. Indeed, similar lobbying rules are being considered by several other states, including New York. Participants were boldly asked, with little cushioning what they would do if affirmative action was taken. Almost two thirds said they would not register in any states, as shown in the chart below, though 27% said would opt to register selectively, depending on perceived opportunities.

California’s new rules are so encompassing that a full 84% of respondents said they would basically start looking at a different pool of potential suitors, i.e. rely less on public funds going forward, as a result of the lobbying rules.

So what’s to become of the many, many shadchanim (that’s really the plural for ‘shadchan’) who look to public pension funds as the ultimate grooms for their respective hedge fund brides? According to the survey, the majority will start looking at different pools of potential suitors. Of note, prohibition on contingency fees is the most contentious aspect of AB-1743 as it is deemed unfair that placement agents should work with no incentive.

And CalPERS and CalSTRS are the first public pensions to get crossed off the list, which could impact on their ability to take advantage of the most promising and/or attractive investment opportunities, according to Preqin:

“Should similar legislation be passed in other states, other public pension schemes could also be affected; a large majority of those surveyed stated that they would rely less on public funds in the future.”

More importantly, the majority of placement agents surveyed noted that they feel that the legislation won’t be effective in achieving its purpose: to prevent corruption The laws do not cover the majority of those that were involved in the illicit activities which spawned the legislation who are mostly board members and pension fund staff.

If only it were so simple with hedge funds and investors, particularly institutions. On the contrary, the dance is usually (and understandably) much more intricate and complex, with payment to the “shadchan only coming after a period of time when everyone is completely happy and the marriage is known to last.

Arguably, after that amount of time, banter and due diligence, the likelihood of fraud or other untoward behavior as in the case of California and elsewhere should be pretty low.

Then again, perhaps there is a reason why one can get set up by a shadchan and married by a rabbi, yet still require a marriage license.

Be Sociable, Share!

Leave A Reply

← AB-1743 - Placement Agents in CA New spin on the Fundamental Law of Active Management finds US mutual funds were "a victim of their own success" →