Mr. Harrigan wasn't available for comment, but spokesman Brad Pacheco said, "The issue of Mr. Hertog is unresolved" and CalPERS is "concerned with any public accounts of any person who might have known about alleged market timing." Mr. Pacheco stressed it would be March before CalPERS trustees would make a final decision on Alliance.
If evidence mounts that Mr. Hertog knew about the company's market-timing arrangements, that could raise the hurdle pension executives would have to clear in opting to stick with the Alliance group.
So far, the reaction by institutional investors has remained fairly measured, in contrast to what happened when Boston-based Putnam Investments became the first money management giant to face civil charges from regulators in the industry scandal that erupted in early September. Big pension funds practically tripped over each other terminating Putnam, tagging the company with outflows that exceeded $30 billion in institutional and retail money in little over a month.
Some public pension funds say they will stick with Alliance despite the reports on Mr. Hertog. Rhode Island Treasurer Paul J. Tavares, through spokeswoman Stephanie Sheehan, said he was already aware of the information about Mr. Hertog contained in press reports, and he stood by earlier statements praising Alliance for being "very forthcoming."
Others expressed concerns, but were clearly hoping to keep Alliance in their manager lineups. Thomas Mann, director of the $4.7 billion Wyoming Retirement System, Cheyenne, said Alliance has been "far and above our best manager" for the past 20 years or more. Alliance manages $633 million in domestic large-cap growth equities for Wyoming, and another $958 million in fixed income.
Mr. Mann said the reports about Mr. Hertog are "certainly a concern," and if true he expects the company to let Mr. Hertog go. But Alliance is a huge, decentralized organization, and Mr. Mann said his people are very happy with the long-term relationship they've had with the investment professionals in Alliance's Minneapolis office who manage the Wyoming funds.
Still other pension executives said they intend to pursue the matter. "This will require some investigation on our part," said Robert Woodard, chief investment officer for the $9.4 billion Kansas Public Employees' Retirement System, Topeka. "Obviously it raises the question of who knew what and when."
But Mr. Woodard figured the ongoing negotiations between Alliance and both state and federal regulators had limited the money manager's scope for publicly responding to allegations. With the Dec. 18 settlement, he said he now expects to have more in-depth discussions with the company.
Investment professionals say they would be very surprised to learn that Mr. Hertog has let investors down in this matter, noting his decades-proven reputation for vigilantly protecting their interests.
"Lew and Roger wouldn't stand for any funny stuff. They would always do what's right for the clients," said one ex-Bernstein employee who worked with them for many years.