Newly-elected New York City comptroller John Liu today lifted a ban on placement agents interacting with New York City pension systems.
At the same time, Liu laid out new requirements to ensure all placement agents that work with the pension fund are vetted, with fund managers who use them disclosing the nature of their contracts and relationships.The ban on placement agents interacting with New York state pension plans, however, remains in place.
Specifically, placement agents will only be allowed to interact with New York City pension funds if they provide legitimate value-added services such as due diligence, if they have raised $500 million in at least two of the past three years from entities other than New York City pension funds, and if they are registered with either the Securities and Exchange Commission or the Financial Industry Regulatory Authority.
Placement agents will also have to provide a full description of the value-added services they provide, along with the resumes of those employees who contact individuals at the pension funds who are involved in investment decisions.
Fund managers will have to disclose all contact with employees of the comptroller’s office and pension trustees, and must certify that they have not given any gifts to any employees of the comptroller’s office nor to any employees or trustees of the New York City pension systems.
Liu also said he would expand the placement agent rules to other asset classes beyond private equity.
These new rules on placement agents and third-party marketers still need to be approved by the various pension boards.
Future agreements between New York City pension plans and investment managers will have to contain provisions “entitling the pension systems to have the right to rescind an investment or commitment and recoup management and performance fees for any failure to disclose pertinent contact or relationship information with the pension systems”, Liu said.
Liu’s statement also seemed to indicate that the SEC will soon follow a similar path regarding placement agents: “Resuming some use of placement agents, who provide legitimate value-added services, is consistent with the Securities and Exchange Commission's scaling back of its ban on placement agents, citing the work provided by these entities,” Liu said.
As for the sections of the placement agent ban that dealt with campaign contributions, Liu said he would decline any contributions from investment managers or their agents who are doing business, or seeking to do business, with New York City pension systems.
The SEC, along with New York Attorney General Andrew Cuomo, have engaged in a multi-year investigation of pay-to-play practices at the $109 billion New York State Common Retirement Fund in which political operatives allegedly strong-armed investment firms into paying sham finder’s fees in exchange for commitments from the pension.
Cuomo has indicted six people, including alleged ringleader Henry Morris, a former political operative of former New York Comptroller Alan Hevesi; David Loglisci, the former New York Common chief investment officer; and Barrett Wissman, the former head of a Texas-based hedge fund.