New York City Enacts New Rules for Its Pension Fund Investments

New York City Comptroller John C. Liu announced sweeping changes in the way New York City pension funds make investment decisions. Following the lead of New York state and several other states, New York City is changing how it deals with gifts, campaign contributions and placement agents.

Ban on Campaign Contributions

  • Comptroller Liu declines any campaign contributions from investment managers and their agents doing business with, or seeking to do business with, the New York City pension systems.

Requirements for Fund Managers

  • Zero-tolerance gift prohibition – fund managers must certify that they have not given any gifts to any employees of the Comptroller’s Office, nor to any employees or trustees of the New York City pension systems;
  • Minimizing contact – fund managers must disclose all contact with employees of the Comptroller’s Office regarding new investments as well as all contact with pension trustees and other individuals involved in the investment decision-making process;
  • Disclosure of placement agents – fund managers must disclose all fees and terms relating to any firm retained to provide marketing or placement services, and that any such fees are fully paid by the fund manager;
  • Agreement for recourse – fund managers must agree that the pension system(s) may terminate or rescind a contract or commitment for investment and recoup all management and performance fees for violation of these requirements.

Restrictions on Placement Agents

  • Expand current ban on private equity placement agents to include placement agents and third-party marketers for all types of funds, where such agents and marketers are exclusively providing “finder” or introduction services;
  • Ease current ban on private equity placement agents to allow use of placement agents who provide legitimate value-added services such as due diligence and similar professional services on behalf of prospective investors;
  • Require such agents and marketers to demonstrate the ability to raise capital outside NYC by establishing that they raised $500 million in at least two of the past three years from entities other than the NYC pension systems;
  • Require full description of value-added services provided as well as resumes of key professionals and employees who contact individuals involved in decision-making process regarding a proposed investment;
  • Require registration with either the Securities and Exchange Commission or the Financial Industry Regulatory Authority.

New York City is separating itself from New York State by not completely banning the use of placement agents. Unfortunately, the Comptroller has not publish a copy of these new rules on his website.

Disclosure: My company has historically used placement agents as part of its fundraising.


Image is by Julius Schorzman under Creative Commons in Wikimedia: Boroughs Labels New York City Map.