NYC Redraws Pension Placement Agent Regs

February 19, 2010 ( - With heightened attention being paid around the country to the role of private placement agents at public pension plans, New York City is revamping the regulations regarding agents' involvement in its $98-billion pension system.

New York City Comptroller John C. Liu announced the changes affecting the city’s five public pension plans that ban all gifts from fund managers to Comptroller’s Office and pension system employees or trustees and mandate a fund manager’s disclosure of placement agents’ involvement in a potential investment and all fees paid as part of that investment.

In a news release outlining the reforms, Liu said that while the city’s current placement agent ban for private equity transactions is being expanded to other investments, that did not mean the city would no longer do business with “legitimate placement agents who provide value-added services.”   

“These changes have been formulated to ensure the utmost of integrity in investment decisionmaking, with the prime objective of maximizing returns to protect taxpayers and our pensioners,” Liu said, in the news release. “In the process, we reject ‘pay-to-play’ schemes and embrace talent and potential for superior alphas.  My office will be open and accessible, and up-and-coming fund managers, including many women and minority-owned firms, can continue to, but need not feel compelled to, engage placement agents.”

New NYC Placement Agent Disclosures

According to the New York City announcement, the new rules include:

  • Liu will not accept any campaign contributions from investment managers and their agents doing business with, or seeking to do business with, the New York City pension systems;
  • a ban on the involvement of placement agents and third-party marketers for all types of funds, where the agents and marketers are exclusively providing “finder” or introduction services. However the new roles ease the current ban on private equity placement agents if the agents are providing services such as due diligence and similar professional functions on behalf of prospective investors;
  • a requirement that placement agents and marketers show they have raised $500 million in at least two of the past three years from entities other than New York City’s pension programs, disclose all “value-added services” provided and the resumes of the people involved in providing the services, and register with the Securities and Exchange Commission (SEC) or the Financial Industry Regulatory Authority; 
  • a requirement that fund managers certify they have not given any gifts to any employees of the Comptroller’s Office, nor to any employees or trustees of the New York City pension systems;
  • a mandate to disclose all contacts with Comptroller’s Office employees, pension trustees or others regarding a potential pension investment; 
  • a requirement that fund managers disclose all fees and terms relating to any firm retained to provide marketing or placement services, and that any such fees are fully paid by the fund manager; and 
  • an agreement giving the pension plans the right to cancel a contract or agreement for an investment if the rules are violated.

Liu is a trustee for four of the five New York City pension systems and investment adviser to, and custodian of, all five. The New York City Pension Funds are comprised of the New York City Employees’ Retirement System, Teachers’ Retirement System, New York City Police Pension Fund, New York City Fire Department Pension Fund, and the Board of Education Retirement System and were collectively valued at $ 98 billion as of January 31, 2010.

New York state Attorney General Andrew Cuomo and the SEC have been running parallel probes of the role of public pension fund placement agents, focusing on whether agents were improperly paying pension officials to make investments with the agents' fund manager clients. Officials in several states, including California and New Jersey, have since tightened placement agent regulations (see Schwarzenegger Signs Law on Placement Agents).