Recently, the US Securities and Exchange Commission voted to bar private equity firms from hiring unregistered placement agents to solicit public pensions for commitments. The rule is mightily watered down from a prior, proposed version that would have outright banned firms from hiring any placement agents to interact with public pensions. The rule also regulates political contributions by GPs, barring them from working with a pension for two years if they contributed more than $350 to a pension official with investment decision-making authority.
Below, executives from placement specialist Atlantic-Pacific Capital weigh in on the changes:
A very positive development indeed and the exact outcome our firm hoped for. The combined ban of unregistered placement agents and the restriction around political contributions to elected officials of public plans is clearly the most prudent solution to the recent pay-to-play scandals. We thank the countless number of investors and fund managers that wrote to the SEC defending the role of legitimate placement agents.
Unregistered placement agents should never have had a role in fundraising in the first place, and political contributions should be banned. We're pleased to see the SEC issue this regulation as it addresses important concerns in the private equity market, while allowing legitimate placement agents to continue to add value to fundraising. We hope pension plans that have implemented a placement agent ban or are evaluating such a ban will apply the SEC’s fair and stringent standards at their institutions going forward.
Since we are in the business of marketing investment opportunities on their merits rather than providing access for a fee, we believe that eliminating access peddlers will lead to better returns for investors and a healthier investment environment for us all.
It would have been a travesty that the behavior of a few unscrupulous individuals resulted in the banning of an entire industry. We applaud this decision, which clearly identifies the important differences between services provided by legitimate agents and those of finders.