Placement Agents Pay to Play

4 More Firms Settle in Placement Agent Pay to Play Scandal

The use of placement agents has come under fire following a public investigation into the practice and investigations into whether a pay-to-play scheme is used in attracting capital from pension funds.  The most recent development is that New York Attorney General Anthony Cuomo’s investigation into pay-to-play arrangements between the state’s pension fund and placement agents for private equity firms has forced four more firms to settle.  Reforming the current system has been met with some resistance especially from firms who argue that outlawing the use of placement agents puts smaller and new private equity firms at a significant disadvantage in raising capital.

The four private equity firms are: Access Capital Partners, Falconhead Capital, HM Capital Partners and Levine Leichtman Capital Partners.  Each has agreed to adopt the rules proposed by Mr. Cuomo barring the use of placement agents to attract funding from pension funds.  Additionally, each firm will pay a total $4.5 million in damages.  Carlyle Group and Riverstone Holdings already settled with the Attorney General. 

“With seven firms now having signed our code of conduct, momentum is building in the industry to make our code the national standard to eliminate pay-to-play in public pension funds across the country,” Cuomo said.

Six people have been indicted so far in the scandal at the New York State Common Retirement Fund. Two have pleaded guilty for their role in the scheme which paid kickbacks to a pair of top aides to former New York Comptroller Alan Hevesi, whose office oversees the Common Retirement Fund.

HM Capital and Falconhead both employed a firm run by a key Hevesi aide indicted in the scandal, Hank Morris, while Access and Levine Leichtman unknowingly hired firms that split fees with Morris. Access had hired Barrett Wissman, who has pleaded guilty for his role in the pay-to-play scheme, who in turn allegedly paid off Morris to win the firm business.  Source

Meanwhile, the SEC’s proposed guidelines that aim to clean up the pay-to-play system may have a very damaging effect on new and smaller private equity firms.  The current system (ethical, or not) enables small and newly launched private equity firms to net capital from investors that it otherwise probably would not have access to.  The big buyout shops are able to use name recognition and a proven track record to entice investors without the need of placement agents, although some big firms use them anyway.

Without using such agents, small and new funds will have a tougher time raising money, critics say. While large, established firms are well known enough to simply contact a pension fund directly, smaller funds without a brand or history have a far tougher job getting heard.  “I think the proposal’s a bit draconian, particularly on banning placement agents,” said Steven Kaplan, a professor of finance at the University of Chicago.

Supporters of the placement agent industry — which includes brand name firms such as Credit Suisse’s (CSGN.VX) placement agent unit and Blackstone Group’s (BX.N) Park Hill Group — argue that their role has no similarity with political fixers, and they should not be tarred with the same brush.  Source

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Tags: placement agents, new york, rules, anthony cuomo, attorney general, private equity, buyouts, placement agents pension funds, new york pension probe, placement of pension funds, pay to play scandal

SEC Placement Agents

SEC Regulates Placement Agents & Pension Funds

The Securities and Exchange Commission (SEC) has developed a plan to stop investment advisers from trading money to politicians for pension business. The industry watches over $2.2 trillion of public retirement funds and the new regulation hopes to halt pay-to-play schemes.

The all five of the SEC’s five commissioners voted to back some tough guidelines aimed at hedge fund and private equity managers, barring their use of placement agents to obtain funds from pension funds. The regulation additionally prohibits firms from managing a pension fund’s assets for a two year period if the managers offered money to an elected official who could influence who receives the contracts. The push toward eliminating pay-to-play activity comes after New York’s Attorney General, Anthony Cuomo started a probe into the potentially illegal use of placement agents to net investments from New York pension funds.

The SEC proposal would also keep investment advisers from asking another person or a political action committee to make contributions to officials with influence over pension assets. Investment managers would also face restrictions on directing their spouses, attorneys or affiliated companies from donating to campaigns.

Individuals who would face restrictions on contributions include owners of money-management firms, general partners and employees whose responsibilities include soliciting pension-fund business. The SEC recommendations resemble rules proposed by the agency in 1999 that were never adopted. In the 10 years since the SEC considered the restrictions, it has seen “a number of criminal and regulatory actions that suggest the need to act to finally address these practices,” SEC Chairman Mary Schapiro said yesterday at a meeting in Washington.

To ensure the rules are enforced, money managers would face new record-keeping requirements and inspections by SEC staff. The SEC will seek public comment on its proposal for 60 days before the agency’s staff determines whether to make any changes. The rule requires a second vote by the SEC commissioners to become binding. Source

Tags: Placement Agents, Hedge Fund Placement Agents, Pension Fund Placement Agents, the Securities and Exchange Commission, SEC Placement Agents, Third Party Marketers SEC

Third Party Marketing Restrictions

The third party marketing industry has been battered over the past 6 months with dozens of reports of un-ethical or illegal kickbacks being provided to third party marketing agents, placements agents and those in control of funds at large institutional investors. This is the first public black mark for the third party marketing industry in several years and many large investor groups are now reviewing the rules surrounding the use of placement agents. In the past full disclosure was adequate to 99% of investors, but now some are not looking at funds which use such agents. Here is a related about this trend:

Legislative leaders have agreed to spend up to $100,000 to help pay for an independent review of New Mexico’s investment practices and policies.

Questions have been raised about investments of public money because of millions of dollars in fees paid to third-party marketing and placement agents by firms that won investment business with the State Investment Council and an educational retirement fund.

Lawmakers are also troubled by billions of dollars in losses in pension and investment funds during the past year as financial market deteriorated.

The Legislative Council, a group of House and Senate leaders, directed its staff on Wednesday to solicit bids from firms interested in doing a wide-ranging examination of the State Investment Council and agencies that administer public pension funds, the Educational Retirement Board and the Public Employees Retirement Association.

The agencies manage funds valued at $25 billion at the end of March.

Gov. Bill Richardson’s administration is jointly commissioning the investment review with the Legislature, and the executive branch will provide up to $200,000. source

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Third Party Marketing Restrictions

The following article was first published on ThirdPartyMarketing.com, now the #1 most widely visited website on fund marketing and sales. The third party marketing industry has been battered over the past 6 months with dozens of reports of un-ethical or illegal kickbacks being provided to third party marketing agents, placements agents and those in control of funds at large institutional investors. This is the first public black mark for the third party marketing industry in several years and many large investor groups are now reviewing the rules surrounding the use of placement agents. In the past full disclosure was adequate to 99% of investors, but now some are not looking at funds which use such agents. Here is a related about this trend:

Legislative leaders have agreed to spend up to $100,000 to help pay for an independent review of New Mexico’s investment practices and policies.

Questions have been raised about investments of public money because of millions of dollars in fees paid to third-party marketing and placement agents by firms that won investment business with the State Investment Council and an educational retirement fund.

Lawmakers are also troubled by billions of dollars in losses in pension and investment funds during the past year as financial market deteriorated.

The Legislative Council, a group of House and Senate leaders, directed its staff on Wednesday to solicit bids from firms interested in doing a wide-ranging examination of the State Investment Council and agencies that administer public pension funds, the Educational Retirement Board and the Public Employees Retirement Association.

The agencies manage funds valued at $25 billion at the end of March.

Gov. Bill Richardson’s administration is jointly commissioning the investment review with the Legislature, and the executive branch will provide up to $200,000. source

Benefit from over $140,000 worth of free consulting advice found within our Hedge Fund Marketing & Sales Guide.

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