Just two days after the US Securities and Exchange Commission revealed details of a proposed rule that would ban contact between placement agents and public pension officials, several alternative investment industry veterans have submitted comments criticising the proposal, including the head of hedge funds at the $22 billion Stanford Management Company.
The SEC website today displayed the comments, and also noted a phone conversation between Mary Whalen, head of public policy Americas for Credit Suisse, and an SEC official, although the substance of the conversation was is not disclosed. Credit Suisse owns the largest fund placement business in the industry.
Today Wesley Ogburn, a portfolio manager in charge of absolute return strategies at Stanford's endowment, submitted comments arguing against the proposed placement agent ban.
“Smaller firms would be put at a disadvantage as they cannot afford to hire and retain full-time marketing and sales staff or could be forced to pass these added costs on to their fund investors,” Ogburn wrote.
In addition, “The ban could reduce breadth and quality of investment options for many government pension plans as they would have reduced access to smaller investment firms that are often oversubscribed and/or have limited resources to market to a broad swathe of institutional investors.”
In language that echoed a separate comment submission, Ogburn argued that the SEC's reliance on an existing set of rules governing the US municipal securities industry was inappropriate in the case of private fund placement.
“The issue of third-party placement agents differs materially from the [Municipal Securities Rules Board] rules/regulations implemented to curb broker-dealers’ use of political consultants to solicit municipal securities underwriting business in the 1990’s,” Ogburn wrote.
“The third-party placement agents are broker-dealers themselves and are therefore subject to a stricter degree of regulatory oversight/enforcement vs. the municipal 'consultants' that banks used to solicit underwriting business from municipalities who were not subject to similar oversight and registration. . .”
The SEC's proposed rule is aimed at controlling “pay-to-play” corruption by banning political campaign contributions from investment managers to elected officials who oversee public money. The placement agent ban is based on an assumption that fund managers will be unable to monitor the activities of their third-party marketers. Ogburn disagrees: “Increased transparency and a ban of political contributions by third-party placement agents should be effective in curbing the 'pay to play' practices of recent years.”
Stanford has a 12 percent allocation to private equity and an 18 percent allocation to absolute return.
For further detail on the comments submitted to the SEC, see a related article on sister news service PrivateEquityManager.com