New York City bans placement agents for pension funds

In an effort to weed out corruption, New York City pensions are tightening compliance rules and cutting out middlemen.

All five of New York City’s pension funds have approved a ban on placement agents across all investment classes, according to a statement from city comptroller Scott Stringer.

The newly-enacted ban is part of a six-point reform package for the operations of the Comptroller’s Office Bureau of Asset Management and the pension funds introduced by Comptroller Stringer in January. The six-point plan is designed to enforce stricter compliance across all types of investments and on all investment officials.

New York City has a history of pay-for-play investment scandal involving placement fees. Two top aides to former city comptroller Alan Hevesi were convicted of violating pay-for-play rules after making millions in placement fees and spreading them around to party cohorts. Hevesi himself ended up in jail in 2011, as part of the kickback dragnet.

“The passage of an ironclad ban on placement agents for all transactions involving the New York City Pension Funds was long overdue,” Comptroller Stringer said.  “Ending the involvement of intermediaries in pension funds’ transactions will ensure that the integrity and independence of our investment decisions are beyond reproach and without conflict.”

Private equity fees have come under close scrutiny from regulators following allegations from the SEC that investors have been heavily overcharged. Pension funds too, including nearby New Jersey, have seen recent allegations that investment officials may be involved in pay-for-play schemes.

The New York City pension funds have approximately $150 billion in assets as of May 31, 2014. The pension system most recently announced a new emerging manager program which will include a capital commitment of up to $1 billion with the goal of improving access for emerging managers, and specifically women and minority owned investment firms.