Year-End Spotlight: Corruption rocks placement industry

Placement agents came under attack throughout much of 2009 as pay-to-play scandals rocked the US public pension systems in the US.

At press time, a nation-wide ban on placement agents interacting with public pensions for investments remained under consideration by the US Securities and Exchange Commission.

Many large, influential US public pensions like the New York State Common Retirement Fund, the California Public Employees’ Retirement System and the Florida State Board of Administration crafted stronger policies on disclosure of placement agent activity or outright bans on placement agents. 

The CalPERS board sponsored state-wide legislation that, if authorised, would treat placement agents as lobbyists, forcing fund managers to pay them a flat fee instead of a sum based on the success of fundraising activities.

Year-End Spotlight

The backlash came at a time when placement agents were already beleagured, given a massive slowdown in fundraising activity. The conditions caused several instiutions including Deloitte, Citi and Merrill Lynch to halt or reduce placement activities.

Deloitte’s 10-strong global team was disbanded due to “an increasingly complex regulatory environment in this area”, the company said in an emailed statement to PEO in August. “This was a niche service offering, and we remain fully committed to the private equity sector.”

While placement agents await their fate at the hands of the US government, the scandal that sparked the regulatory outcry continues to grow. It involved a handful of players, mostly in New York, who would allegedly strong-arm private investment firms to pay sham finder’s fees in exchange for commitments from the pension. For full coverage of its many twists and turns, consult the related stories to the right.

For more information, consult the story archive to the right for PEO's detailed coverage of the scandal investigation in the US.