SEC Publishes Proposed Placement Agent Rules

The SEC today released a series of proposed rules that would effectively bar private equity firms from using placement agents, when soliciting capital commitments from government-sponsored organizations (public pensions, etc.). The rules also would prohibit investment advisors from soliciting such commitments within two years of making a political contribution to a system official, and also would require that that investment advisors keep records of all political contributions made by its employees (contributions under $250 would be excluded, so long as the contributor is legally entitled to vote for the recipient).

All of this is intended to combat pay-to-play scandals, which have been uncovered in states like New York, Illinois, New Mexico, Ohio and Connecticut. And I completely agree with the ban on political contributions (which extends to other “gifts”). Unfortunately, the umbrella placement agent ban is a broad overreach that will severely hamper new and small investment firms from raising fund capital. Hopefully, a compromise will be reached, whereby the implicit payoffs are banned but the legitimate placement agent work can be maintained.

Two other minor thoughts while reading through the 114-page proposal (entire doc posted below): (1) There is no mention of contributions by the spouse of an investment advisor, even though such contributions are commonplace. (2) There is no mention of whether the “government clients” would include public university endowments, or just pension funds. It’s an important inclusion/exclusion, given the amount of money invested by places like UC, UTIMCO, U Michigan, etc.

The entire 114-page proposal is below, and you can submit comments to the SEC by going here.

SEC_Rules