Four Private Equity Firms Return $4.5 Million to NYS Common Fund

Four private equity firms have agreed to repay $4.5 Million in fees in connection with retaining placement agents to obtain business from the New York State Retirement Fund. The four firms also agreed to abide by New York’s Code of Conduct, which bans investment firms from hiring, utilizing, or compensating placement agents, lobbyists, or other third-party intermediaries in order to obtain public pension fund investments. Notably, two of the firms did not even know that the placement agents that they paid were funneling money to Hank Morris, who has been indicted on securities and fraud charges. Agreements with the placement agents required approval before payment to a sub-finder or other third party. The New York State Code of Conduct has served as the basis for a recently proposed SEC rule.

OUR TAKE: We do not sanction corruption, conflicts of interest, or lack of transparency. However, banning placement agents may be overbroad. In many cases, third party placement agents serve as the marketing arm of smaller fund managers who would otherwise never become available to public pension funds.

http://www.oag.state.ny.us/media_center/2009/sep/sep17a_09.html