Minority politicians could be hardest hit if the SEC adopts so-called "pay-to-play" rules.
The Securities and Exchange Commission has proposed prohibiting a money manager from taking investment management fees from a public pension fund client for two years after the firm has made a contribution to a public official with influence over that fund.
"It would have a chilling effect on minority public officials," said Maceo Sloan, chief executive officer of NCM Capital Management Group Inc., Durham, N.C. Mr. Sloan has held large fund-raisers for New York State Comptroller H. Carl McCall, the highest ranking black elected official in New York.
Difficulty raising funds
Mr. McCall, the sole trustee of the $100 billion New York State Common Retirement Fund, received campaign contributions for his 1996 re-election campaign from many money managers who do business with the pension fund.
Besides, Mr. Sloan noted, "I give money to elected officials all over the country who can't do anything for me."
Betsy Dotson, director of the Government Finance Officers Association's Federal Liaison Center, agreed with Mr. Sloan's assessment. "One of our criticisms of G-37 (the SEC's pay-to-play rule for municipal securities) was that it would hurt women and minorities -- that they would have a more difficult time raising funds," she said.
The GFOA believes the SEC should defer to states that have their own pay-to-play rules.
The proposed rule "is troubling for a lot of us that want to encourage young entrepreneurs to be part of the political process," said John Rogers, president and co-chief investment officer of Ariel Capital Management Inc., Chicago, who has given money to many minority politicians.
Mr. Rogers said he had just attended the conference of the National Rainbow/PUSH Coalition, at which both Jesse Jackson and presidential candidate Sen. Bill Bradley encouraged entrepreneurs to get involved in the political process.
"They (the SEC) seem to be calling attention to the process now as smaller firms" are winning money management contracts from public pension funds, said Clayton Jue, chief investment officer of Progress Investment Management Co., San Francisco. Progress is a manager of managers that makes use of minority- and women-owned firms.
"The larger firms have benefited; now that smaller firms -- which have always been at a disadvantage -- are participating in the process, they're trying to prohibit it," added Mr. Jue, who said he was speaking for himself, not for his firm.
Money managers troubled
He also was a contributor to Mr. McCall's 1996 campaign. "I contributed to him as a private citizen," he said, adding he believes the SEC's proposal limits the rights of private citizens to participate in the political process.
As for Mr. McCall, a spokesman said he and his campaign "will abide by whatever rules are in effect, in both the letter and the spirit of the law."
The proposed rule also would be burdensome for large money management firms that have many public pension funds as clients, said David Tittsworth, executive director of the Investment Counsel Association of America, Washington, whose members are money managers.
Managers to comply
It would have a direct financial impact, he said, pointing to the SEC's own estimates that large money managers (which the agency defines as firms that have more than 15 partners, executive officers or solicitors who would be affected by the law) would incur compliance fees of about $90,000 a year.
"My guess is that the SEC estimates would not be on the high side and the proposed rule will be fairly burdensome for large firms," he said.
Public pension funds themselves could be at some peril from the proposed rule, Mr. Tittsworth said.
If a pension fund were seeking a manager for a more "exotic" investment style for which there weren't many firms from which to choose, he said, the fund would be forbidden from using a firm it wanted if an executive from the firm happened to have made a contribution to an elected official connected with the fund.
The ICAA had suggested to the SEC that it adopt, instead, a full disclosure policy in which investment managers have to disclose all campaign contributions given by any of their executives, Mr. Tittsworth said.
A spokesman for UBS Brinson Inc., Chicago, which has about $300 billion in assets under management, said the firm "is in favor" of the proposed rule.
The nation's largest pension fund, the $160 billion California Public Employees' Retirement System, Sacramento, has put its own proposed regulations in this area on hold until it examines the SEC proposal.
According to Patricia Macht, public affairs chief for CalPERS: "Our staff will analyze the proposed rule to see if it pre-empts the need for us to do our own regulations, or if we want to change our proposal to fill gaps in the rule.
"We're supportive in general, we will monitor the process and will wait until federal action is completed before we take any action of our own."
The SEC said it expects to have a final rule sometime in 2000; the agency is accepting comments until Nov. 1.