February proposals in New York and California – home to some of the nation’s largest public pension plan investors – would mark significant policy changes with respect to the use of placement agents to solicit private equity investment from public pension plans.
On February 18, New York City Comptroller John C. Liu proposed new rules that would apply to the five New York City public pension systems (the “NYC Plans”), collectively valued at $98 billion. The Comptroller’s proposal would permit fund managers to use “legitimate placement agents who provide value-added services” to solicit investments from the NYC Plans. The proposal, which must be adopted formally by the NYC Plans’ five governing boards, would loosen the current outright prohibition on the use of placement agents adopted by each NYC Plan.
A placement agent would need to meet minimum requirements to be eligible to solicit a NYC Plan, including (i) disclosure of fees paid and other engagement terms, as well as resumes of principals and key employees, (ii) proper registration with the SEC and Financial Industry Regulatory Authority (FINRA), (iii) demonstrated ability to raise at least $500M in commitments from entities other than the NYC Plans in two of the last three years, and (iv) a “full description of the value-added services” the placement agent provides.
The Comptroller’s proposal still must be adopted by the governing boards of the NYC Plans before it would take effect.
In California, Assembly Bill 1734 introduced on February 8 would subject placement agents seeking to solicit California state public pension plans to strict gift limits and campaign contribution prohibitions and require placement agents to register as lobbyists under the California Political Reform Act. Perhaps most significantly, AB 1734 would prohibit placement agents from receiving compensation contingent on any pension fund investment decision. AB 1734 has been endorsed by Rob Feckner, President of the California Public Employees’ Retirement System (CalPERS), California State Treasurer Bill Lockyer and California State Comptroller John Chiang.
If enacted, AB 1734 would apply to CalPERS (the nation’s largest public pension plan, with approximately $199 billion in assets), the California State Teacher’s Retirement System (CalSTRS) and local California jurisdictions that have lobbyist registration laws in place. Current California law signed by Governor Arnold Schwarzenegger in 2009 requires placement agents to disclose campaign contributions and gifts made to pension fund board members and requires California state and local pension plans to develop and implement policies requiring disclosure of payment to placement agents by external investment manager no later than June 30, 2010.
We are continuing to monitor development of placement regulation at the federal, state and local level. Please contact your Proskauer attorney if you have any questions about the current status of placement agent regulation in any particular US jurisdiction.