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Alternative Market Briefing

Institutional investors unaware proposed SEC regulation of third party placement firms includes ban on political contributions

Thursday, August 27, 2009

From The Opalesque Team:

With the overhaul in US financial regulation currently underway the SEC recently expanded its regulatory targets to include the relationship between institutional investors with third party marketing firms. As a direct result of the pay-to-play scandal that rocked the New York State Pension Fund and included some well-known private equity and hedge fund firms, the SEC has proposed Advisers Act Rule 206(4)-5.

Ban on third party placement agents for public investors The proposal specifically looks to ban the use of third party marketing agents by public institutional investors. “The new rule would also prohibit an adviser from providing or agreeing to provide, directly or indirectly, payment to any third party for a solicitation of advisory business from any government entity on behalf of such adviser.” (The proposal is available here: Source.)

Thursday, research firm Preqin will release the results of a new survey that shows while the 50 largest investors are overwhelmingly in favor of the ban on political contributions, 70% were against ending the practice of using the third party placement agents.

The investors were focused mainly on this part of the proposed regulation, as 60% of those polled committed to investing assets in funds managed by firms that were initially brought to their attention through such placement agents. Acco......................

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