UPDATE 1-Calif. firm pays $2 mln in Cuomo kickback probe

* California adviser to reimburse state pension fund

* PCG becomes third firm to adopt code of conduct

* Cuomo pursuing nationwide "pay-to-play" probe (Adds Cuomo spokesman comment)

By Jonathan Stempel

NEW YORK, July 1 (Reuters) - A California pension fund adviser has settled in a probe by New York Attorney General Andrew Cuomo into alleged kickbacks involving public pension funds.

The agreement calls for Pacific Corporate Group Holdings LLC to adopt a code of conduct governing pension investments, and for an affiliate to pay more than $2 million in restitution to the New York State Common Retirement Fund in exchange for not having to face civil or criminal charges. Cuomo said.

A spokesman for Cuomo said PCG was not fined, and cooperated with the investigation.

Cuomo is conducting a nationwide probe into whether private equity firms and hedge funds are making improper payments to win pension fund business, a practice known as "pay-to-play."

Private equity firms Carlyle Group [CYL.UL] and Riverstone Holdings LLC previously agreed to pay a respective $20 million and $30 million and adopt the code of conduct, which bars the use of intermediaries to gain access to pension funds.

PCG is the first pension fund adviser to adopt the code. The company is based in La Jolla, California, but has offices around the world.

Cuomo said his probe revealed that the affiliate, PCG Corporate Partners Advisors II, was a minority partner in a joint venture that paid kickbacks in order to win a $750 million investment from the $109.9 billion Common fund, one of the nation's largest public pension funds.

"As a gatekeeper to public pension funds, PCG has a responsibility to exercise the highest level of ethical conduct in its work," Cuomo said in a statement. "By proactively adopting our Code, PCG has set an important example."

In March, a grand jury returned a 123-count indictment against David Loglisci, the fund's former chief investment officer, and Henry "Hank" Morris, a top fund-raiser to former state Comptroller Alan Hevesi, related to the case.

The U.S. Securities and Exchange Commission has also accused Morris of reaping kickbacks from helping firms get hired to invest in the Common fund.

PCG, in a statement released by Cuomo, said it settled "to make the public whole for the improper actions of a former executive, to put this episode behind us and to move our business forward."

The company referred a call to outside spokesman Daniel Hilley, who declined to elaborate. (Reporting by Jonathan Stempel; Editing by Tim Dobbyn)