UK Pensions

US pay-to-play rules proposed amid pension probe

WASHINGTON (Reuters) - Money managers would be restricted from making political contributions in hopes of winning business from pension funds, under rules proposed by the U.S. Securities and Exchange Commission on Wednesday.

The “pay-to-play” proposal would bar an investment adviser for two years from providing services to a pension fund if the adviser makes a political contribution to an elected official who can influence the selection of advisers.

The new proposal, which revisits a 1999 SEC proposal that was not finalized, comes as the SEC works with New York Attorney General Andrew Cuomo in a broad pension kickback probe.

The pay-to-play probe of New York’s $110 billion (66.5 billion pounds) pension fund is investigating millions of dollars of fees that investment firms pay to placement agents.

Placement agents are the middlemen that help fund managers win business investing public pension funds.

The kickback probe has ensnared Henry Morris, the former New York comptroller’s fund-raiser, and David Loglisci, the state’s former top pension investment officer.

Steven Rattner, the former head of the U.S. autos task force who resigned earlier this month, and the private equity firm he co-founded have also been linked to the corruption probe.

“While the SEC can and has brought fraud cases related to kickbacks in adviser pay-to-play schemes, we are concerned there may be broader efforts and monetary payments being made to influence the selection of advisers to manager government plans,” SEC Chairman Mary Schapiro said.

Public pension plans hold more than $2.2 trillion of assets and represent one-third of all U.S. pension assets.

The SEC said the size of the government plan market has exploded since 1999, making it necessary to revisit the effort to curtail pay-to-play actions that can result in sub-par advisory services and drive up costs.

Democratic commissioner Luis Aguilar said the proposal will be beneficial but acknowledged pay-to-play conduct “is incredibly hard to police.”

Sen. Bob Bennett, a Republican from Utah, said in a statement on Wednesday that the proposal does not go far enough, and said the SEC should also target law firms that engage in pay-to-play arrangements with pension funds.

The rules proposed on Wednesday would ban investment advisers from making direct political contributions to seek pension fund business, and from paying third parties, such as a placement agent or family members, to seek the business.

The restrictions would generally apply to advisers of pooled investment vehicles, such as mutual funds, that are often used as investment vehicles for state-sponsored plans.

The proposed rules are subject to a 60-day comment period, after which the SEC will likely schedule a vote on whether to finalize the rules.

Reporting by Karey Wutkowski; Editing Bernard Orr