S.5632 (Rules)/A.7909 (Abatte) @ request of State Comptroller


Vice President of Government Affairs


S.5632 (Rules)/A.7909 (Abatte) @ request of State Comptroller


Prohibit Use of Placement Agents in CRF Investments



The Business Council opposes this legislation which would prohibit the state’s common retirement fund from engaging with investment managers that use a “placement agent” or other intermediary to assist in obtaining CRF investments.

While The Business Council joins the securities industry in supporting the end of “pay to play” practices regarding the CRF, and supports a ban on the use of unregulated political “finders” to encourage CRF investments, we believe this legislation is over-broad and counter productive.

This legislation, which codifies an April 2009 policy issued by Comptroller DiNapoli, is also inconsistent with Federal regulations. In July, 2010 the SEC announced new, strict pay to play and campaign contribution limit rules for investment managers ("206(4)-5") which have already taken effect. A similar pay to play rule is slated to take effect this September for all registered placement agents engaged in soliciting public pension funds. Investment managers covered by SEC rule 206(4)-5 may only use registered placement agents subject to these strict pay to play rules after September 2011. The SEC agreed that its initial proposal to ban use of all intermediaries was overly broad, and adopted a final rule that permits investment advisers to make payments to certain “regulated persons” to solicit government clients on their behalf, specifically broker-dealers and registered investment advisers that are themselves subject to prohibitions against participating in pay to play practices and are subject to SEC oversight and, in the case of broker-dealers, the oversight of a registered national securities association, such as FINRA.

We believe the Federal approach is more workable, and presents an effective means of eliminating untoward pay to play practices with regard to the CRF.

Moreover, we believe the Federal approach avoids some of the negative, counter-productive impacts of the State Comptroller’s broad ban, which could limit investment options to the Fund and impact smaller fund managers, including minority and women-managed funds.

We believe there are more targeted, more effective regulatory approaches available to the state, and we urge the State Comptroller and State Legislature to consider the approach adopted by the Securities and Exchange Commission’s Rule 206(4)-5.

For these reasons, The Business Council recommends against the overly broad ban on use of placement agents proposed in S.5632/A.7909.