Allowing some use of placement agents was among new rules proposed today by New York City Comptroller John C. Liu, who oversees the city's five pension funds.
“The current ban on private equity placement agents will be expanded to other fund types, but will be eased to allow legitimate placement agents who provide value-added services,” according to a news release issued by Mr. Liu's office.
New York City and New York state pension funds banned the use of placement agents last year after Andrew Cuomo, New York state attorney general, issued a code of conduct as part of his investigation into alleged “pay-to-play” political influence on the state's pension fund.
“We reject ‘pay-to-play' schemes and embrace talent and potential for superior alphas,” Mr. Liu said in the news release. “My office will be open and accessible, and up-and-coming fund managers, including many women- and minority-owned firms, can continue to, but need not feel compelled to, engage placement agents.”
Mr. Liu outlined the following restrictions on placement agents and third-party marketers, which must be approved by the boards of the five pension funds:
• Ban placement agents and third-party marketers “for all types of funds, where such agents and marketers are exclusively providing ‘finder' or introduction services”;
• Allow use of placement agents “who provide legitimate value-added services such as due diligence and similar professional services on behalf of prospective investors”;
• Require agents to show they have raised $500 million in at least two of the past three years from entities other than the city pension funds;
• Require a “full description of value-added services provided” plus the resumes of key professionals and employees “who contact individuals involved in decision-making process regarding a proposed investment”; and
• Require that placement agents and third-party marketers be registered with the SEC or FINRA.
Mr. Liu also proposed a ban on campaign contributions and gifts from investment managers and agents doing business with the city's pension system. There will be “zero-tolerance” for gifts from fund managers, who must certify they haven't given gifts to employees of the comptroller's office or to employees and trustees of the city's pension funds, the news release said.
As of Jan. 31, the city's pension funds — the New York City Employees' Retirement System, Teachers' Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund and the Board of Education Retirement System — had a combined $98 billion in assets under management. Mr. Liu also serves on the boards of all funds except the Board of Education system.
Officials with the comptroller's office couldn't be reached for comment.
