CalPERs, the nation’s largest pension fund with $167 billion in assets, on Monday adopted a standard code of ethics for its outside money managers and consultants.

The move by the California Public Employees Retirement System comes on the heels of a major mutual fund trading scandal that has engulfed a number of the biggest U.S. mutual fund firms including Putnam Investments, Alliance Capital and MFS Investments.

"This code of ethics advances the process that we began last November when we terminated our contracts with Putnam investments for improper trading activities to the detriment of long term investors," said Sean Harrigan, board president at CalPERS

The code of ethics stipulates that outside managers and consultants must conduct a biannual review of compliance by a third-party expert, focusing on internal controls used to curtail improper trading such as market timing and late trading. Additionally, they must designate an independent "conflicts" officer to address potential conflicts of interest and implement procedures to see that they are managed properly. That individual will report directly to the chief legal officer at the firm.

Another tenet of the standards calls for the comprehensive disclosure of all transaction costs including comparative data outlining industry standards. Managers must also disclose all soft dollar arrangements with partnering brokerage firms and compensation policies that require the investment or deferral of current income into the firm’s products. In other words, they want managers who "eat their own cooking" or have their money on the line.

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