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Hedge Fund Placement Agents

Hedge Fund Placement Agents

SEC Regulations on Hedge Fund Placement Agents

The Securities and Exchange Commission (SEC) has developed a plan to stop investment advisers from trading money to politicians for pension business. The industry watches over $2.2 trillion of public retirement funds and the new regulation hopes to halt pay-to-play schemes.

All five of the SEC's commissioners voted to back some tough guidelines aimed at hedge fund and private equity managers, barring their use of placement agents to obtain funds from pension funds. The regulation additionally prohibits firms from managing a pension fund's assets for a two year period if the managers offered money to an elected official who could influence who receives the contracts. The push toward eliminating pay-to-play activity comes after New York's Attorney General, Anthony Cuomo started a probe into the potentially illegal use of placement agents to net investments from New York pension funds.

The SEC proposal would also keep investment advisers from asking another person or a political action committee to make contributions to officials with influence over pension assets. Investment managers would also face restrictions on directing their spouses, attorneys or affiliated companies from donating to campaigns.

Individuals who would face restrictions on contributions include owners of money-management firms, general partners and employees whose responsibilities include soliciting pension-fund business. The SEC recommendations resemble rules proposed by the agency in 1999 that were never adopted. In the 10 years since the SEC considered the restrictions, it has seen “a number of criminal and regulatory actions that suggest the need to act to finally address these practices,” SEC Chairman Mary Schapiro said yesterday at a meeting in Washington.

To ensure the rules are enforced, money managers would face new record-keeping requirements and inspections by SEC staff. The SEC will seek public comment on its proposal for 60 days before the agency’s staff determines whether to make any changes. The rule requires a second vote by the SEC commissioners to become binding. Source

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