A group of about two dozen placement agents recently formed a lobbying group to address state and federal efforts to ban their usage by private equity and venture capital firms trying to raise capital from from public pension systems. The group is spearheaded by C.P. Eaton Partners and Atlantic-Pacific Capital.
PE Week Editor-at-Large Dan Primack last week chatted with C.P. Eaton founder Charlie Eaton to learn more about the group’s objectives and structure.
Q: Is this group supposed to be around for the long haul, or is it more a short-term creation to deal with immediate issues at the state and federal level?
A: We haven’t thought beyond the current issues. I think we assume we might have to work on this all year, and if we can address the situation and get a favorable outcome in New York, then perhaps it would create a precedent that would be used in states like Illinois and New Mexico, which both have bans in certain jurisdictions.
We always knew the Securities and Exchange Commission would get involved, so that would be part of the program as well. We may not need to keep this coalition together after that, although we could obviously continue discussions and commiserate more informally.
All of our expenses are going to a lobbyist that will help us get into speak with the right people. We wouldn’t know who to call in the governor’s office or the controller’s office or at the SEC. So, as a group, we’re getting in and seeing those who will be part of the decision-making process. It’s not a lot of money, and our lobbyists aren’t making political contributions. They’re on retainer.
Q: Is there any bifurcation in terms of placement focus (VC, buyout, hedge, etc.), like what we’ve seen with direct investment lobbying groups (NVCA, PE Council, etc.)?
A: I don’t see any bifurcation. We’re all in this together in terms of realizing that this isn’t good for anyone in the business who should be in the business.
There are some firms going it alone who don’t want to be part of the coalition, but almost every firm is doing something, whether it’s lobbying on its own, like some of the Wall Street firms can do, or talking to their own clients. [Some non-participating] firms are going through hard times, so it might be that they don’t have the money to spare.
Q: Why aren’t you releasing the list of participating firms?
A: Some firms don’t want their names officially disclosed, because they’re concerned about being associated with another firm that might not be on the up-and-up. This is a byproduct of placement agents not often talking to each other or knowing all of another firm’s personnel.
But there isn’t any firm that isn’t concerned, whether or not they’re part of this coalition or helping to pay the bills.
Q: The SEC still hasn’t released its proposed rules, but Mary Shapiro’s statement never directly referenced private equity, even though it’s at the heart of the New York pay-to-play scandal. She did, however, repeatedly mention mutual funds. Is it possible that this is a mountain out of a molehill, and that PE placement isn’t the SEC’s actual target?
A: It is possible, because it wasn’t very clear to me when I read the statement. I don’t know enough about the politics, and I’m not even sure she has jurisdiction over PE funds that aren’t registered as investment advisors – although she does have some jurisdiction over public pension and university funds. We could be losing sleep over something that isn’t real, which is why we’re all very eager to see the rules.
Q: Imagine that the SEC rules do apply to PE, and are adopted. What would it mean to the placement industry?
A: I think a lot of firms would go out of business. There are so many public funds that, collectively, they’re an extremely large part of the institutional investment community. For example, 35% of our business in recent years has been with public funds… and that’s even higher if you include outside consultants or funds-or-funds hired by the public systems. It really could be the end of the placement business, which is already very, very tight.
The implications to pension funds would be severe as well, because they wouldn’t have access to a lot of small, new and minority firms that are trying to raise first or second funds. The biggest investment advisors would just get bigger