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SEC Joins The Anti-Placement Agent Insanity
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The SEC today proposed new rules that would prohibit private equity funds (broadly speaking) from using placement agents, when trying to secure capital from public pension systems. This is basically the federalization of what’s been doing in New York, and is equally misguided (albeit well-intentioned). This is basically the federalization of what’s been going on in New York, and is equally misguided (albeit well-intentioned). “Placement agents” didn’t cause the pay-for-play scandal in New York. Corrupt public pension officials did. All the scummy fixers in the world can’t make a dent in an honest retirement system. That’s why it’s pay-for-play, rather than just pay. Legitimate placement agents serve an invaluable role in the capital-raising process, particularly for smaller firms. Banning them in this way will diminish the ability of new firms to secure commitments from the market’s largest (and often dumbest) investors. As such, it also will further diminish the number of new firms. If you’re going to institute a ban, why not begin by: (A) Banning non-registered placement agents; and (B) More closely monitoring those who apply for registration? It’s like saying that an intersection is too dangerous, so the solution is to shut it down rather than install traffic lights. There are some good pieces of the SEC proposal — particularly the part banning political contributions — but the headline premise is flawed. Luckily, these are just proposed rules, and a 60-day comment period will commence once the official proposal is published (it’s just a statement from Shapiro at this point). I’m told that something similar was proposed back in 1999, but that it imploded. If common sense prevails, we’ll see flames again. Related Posts |
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July 23rd, 2009 at 11:29 am
It takes two to tango in a corruption scandal, a payer and a receiver (and often an intermediary to conduct the transaction and skim some off for him or herself). Of course there’s no scandal without corrupt public officials, but there’s also no scandal without corrupt private equity firms willing to pay to play. As the AG’s indictment made clear, some private equity managers begged off the New York game when they learned that they had to pay kickbacks as the price of admission. I wish these firms’ names were publicized so we could applaud them publicly their honesty. Instead, we only know the names of the dishonest ones, who now seem to be getting off with a slap on the wrist from the AG (although we’ll see if the SEC decides to throw the book at any of them) , even repeat offenders like Carlyle (see Illinois Teachers, Connecticut under Silvester for earlier examples of Carlyle paying to play). I think you need to temper your cheerleading for private equity with an acknowledgement that, just as most public pension officials, placement agents and private equity executives are honest, there are rotten apples in each of those barrels, and they all contributed to the pay to play scandals.
July 23rd, 2009 at 11:47 am
Couldn’t agree more. A ban is crazy. Placement agents are just one flavor of essential intermediaries we have in our society. They’re not a lot different than real estate brokers. Certain markets need help in bringing buyers and sellers together, and this is clearly one of them. Regulation of any bribes, kickbacks or similar misconduct should absolutely be done (just as it should with any intermediary), but an outright ban would do much more harm than good.