The last 30 days have been intense for the private placement industry, which has been going through some arguably predictable upheaval as the industry confronts tough new economic realities.
Following news that Chicago-based investment firm William Blair & Co shuttered its fund placement division, PEO revealed that embattled global bank Citi will shut down its third-party private equity fund placement platform by the end of the year. Some of Citi's team have already been hired by rival Credit Suisse, including Filo Sedillo, who led Citi's placement operations in Australia and New Zealand, and Jamal Al Naif, fomerly the head of Citi's institutional efforts in the Middle East.
This upheaval, however, soon took a back seat to the New York Common Retirement Fund's pay-to-play scandal, which has brought placement agents into the fold by failing to distinguish between “introducers” or “finders” – like those implicated in the scandal – on the one hand, and legitimate placement agents on the other.
The unfolding scandal's twists and turns – from specific individuals' alleged involvement to limited partners utilising the scandal as a means to demand more power over fund terms and conditions – have been of immense interest to PEO readers.
We argued in a recent Friday Letter that the Carlyle Group's settlement with New York Attorney General Andrew Cuomo bodes badly for private placement professionals, because part of the agreement stipulates that the buyout firm will not use intermediaries – including legitimate placement agents – to secure fund commitments from any US pensions.
This may not have adverse fundraising effects on Carlyle, which has a large internal investor relations team. But if it becomes a precedent followed by others, it will negatively impact the business of placement agents that do provide clients with real value. It effectively endorses the narrow view being pushed by Attorney General Andrew Cuomo – and gradually being adopted by the US public at large – that all third-party intermediaries are equally bad and should universally be viewed as shady characters and political fixers skimming money off the top of transactions.
PEO will continue to dispel this misconception. But industry participants who know the placement business well – from senior pension officials to general partners and fund investors – must help educate the individuals investigating the kickback scandal to make certain that any policies developed ensure the good guys are not cast out with the bad.