US - The majority of institutional investors are against banning the use of placement agents in private equity investments, a survey by Preqin found.
The Securities and Exchange Commission has proposed for comment a new rule, which would prohibit, among other things, the use of placement agents, as it tries to curtail pay-to-play practices.
The proposed rule change also prevents an investment adviser from providing advisory services for compensation to a government client for two years after the adviser makes a contribution to certain elected officials or candidates.
Preqin said despite 80% of respondents said to be in favour of restrictions on advisors making political contributions, 70% were against banning the use of third-party marketing professionals.
Preqin head of communications Tim Friedman said: "Clearly there is support for the cessation of political contributions, but the blanket ban on the use of placement agents is a draconian solution that will not be welcomed by the vast majority of the private equity industry."
He also said the proposal "may in fact cause the exact opposite of what the SEC intended, with smaller private equity firms likely to lose out to a much greater degree than the larger firms which will be able to adapt to the new rules by forming in-house fundraising and placement teams".
The report's conclusions echo those of Missouri State Employees Retirement System chief executive Rick Dahl, who earlier this month became the first public pension fund representative to speak out against the SEC's plans. (Global Pensions; August 18, 2009)
"Prohibiting legitimate placement agents from working with public pension funds is an extreme measure that will have unintended consequences," he said in a comment letter to the SEC.
The report also show 77% of respondents see placement agents as very important for smaller firms, while 15% see placement agents as very important for larger firms.
In addition, 70% of respondents see any ban on placement agents benefiting larger firms with 0% of respondents seeing a benefit for smaller firms.
Fifty per cent of public investors such as pension plans have invested with private equity funds after being approached by a placement agent.
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