Monday, June 28, 2010

Senator Dodd Defended PEU Placement Agents

The Securities & Exchange Commission will vote on tighter rules for private equity marketing to public pension funds. The rules attempt to prevent paid political influence in pension fund investments. Private equity underwriters (PEU's) are known for their political connections.

The Carlyle Group and joint venture energy partner, Riverstone Energy, paid $70 million to make a New York pension "pay to play" investigation go away.

During the financial crisis private equity made billions in capital calls on public pensions, already stressed from underfunding. Pensions ponied up, preventing a complete PEU meltdown.

Shadow bankers committed many sins, including excessive leverage. Yet, they received a free pass under the financial reform bill. One architect, Senator Chris Dodd defended the use of placement agents. Bloomberg reported:

In February, Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, said in a letter to the SEC that banning placement agents risked eliminating the only “cost-effective way for smaller funds” to compete with bigger rivals in winning contracts to manage pension-fund assets.

The more things change, the more they stay the same.