A future for fundraisers (Editor's letter)

Just a couple of months ago, it appeared that the placement agent business had been given the death sentence for a crime it did not commit. 

Thanks to the sleazy conduct of a few unregistered and politically connected middlemen, no less than the SEC, the attorney general of New York, the city comptroller of New York and several state pension authorities all established rules effectively banning the use of “placement agents”, broadly defined, to raise capital from US public pensions. 

But as you’ll read in your March issue of PEM Monthly, there are signs that a flat-out ban on placement agents is being rethought. Last month we reported that the SEC has contacted the Financial Industry

Regulatory Authority (FINRA), which regulates broker-dealers, about constructing rules governing placement agents. If enacted these rules would presumably negate the SEC’s original plan to ban placement agent/pension interaction altogether.

A further gleam of light shone down on placement agents in the form of a new policy from the comptroller of New York City. John Liu announced that placement agents would not be banned from doing business with the city pensions he oversees, so long as these groups can prove that they are legit. Among these requirements would be registration with FINRA, a track record of having raised money outside of New York, and evidence that real services are being provided (as opposed to just an introduction).

Real placement agents will be relieved at all this news, which seems to indicate that the worst-case scenario of a nationwide public pension ban may not come to pass. 

But before they break out the bubbly, all participants in the fundraising market should pause to reflect on where these regulatory afflictions came from. Yes, a handful of rogue actors committed crimes that ended up smearing the entire fundraising process. But none of the other industry participants, including the press, did enough to shine a light on the murky characters hanging around public pensions.

Whatever regulatory structure is ultimately put in place governing the private fundraising market, GPs, placement agents and every other legitimate actor should never hesitate to light up people seeking to circumvent and corrupt it. That way, any resulting regulatory response is more likely to only target the bad guys.