NYC Does Right By Both Pensions and Placement Agents

I have not yet met new NYC Comptroller John Liu, but he already seems to be a vast improvement over his predecessor (and not just because he quoted my obscenity in an official announcement of Larry Schloss as CIO).

The latest example came this morning, with Liu announcing that he will lift an existing ban on private equity placement agents doing business with the NYC pension system. There are, however, several new conditions:

  1. Placement agents must be registered with the SEC and/or FINRA
  2. Placement agents must describe the services provided
  3. Placement agents must demonstrate that they have helped raised at least $500 million from other entities (i.e., not NYC) in two of the past three years.

Moreover, those using placement agents now would be required to disclose their usage, including any associated fees. Fund managers seeking NYC business also would be required to disclose any contacts with Comptroller’s Office employees, and would be precluded from providing any gifts or campaign contributions to NYC pension officers.

Finally, these rules would be expanded to placement agents for funds in all asset classes, not just private equity.

This is a sensible, even-handed policy that does right by both pensioners and the private equity firms charged with their financial prosperity. It also might be a blueprint to be followed by the SEC, which is nearing its own decision on placement agents doing business with public pensions.

My only quibble is with the $500 million floor, because it would seem to prohibit any new placement agents from working with NYC (i.e., is too pro-incumbent). Moreover, I would think that many smaller – and legit – agents didn’t raise $500 million in 2009, given the macro fundraising troubles. But these are minor issues in the big picture, and kudos to the new Comp…