September 30, 2009
Ms Mary L Schapiro
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549
Dear Ms Schapiro
I am writing to you as the retired Chief Investment Officer for the Colorado Public Employees Retirement Association in Denver (PERA) regarding the SEC`s initiative to eliminate the use of placement agents for alternative investment assets, (private equity).
I support the SEC`s efforts to ban political contributions by investment advisers to state and local pension funds but to eliminate placement agents, in my opinion, is a mistake. Regulate - yes, eliminate - no. Since most pension funds have very small staff`s, placement agents can and do fill the needs of those by "seeing what is available to invest in" in the market place. Both public and local pension funds are constantly looking for new areas to prudently invest their capital to improve portfolio performance. Private equity is one of those asset classes that has demonstrated higher returns compared to the more traditional asset classes, eg, publicly traded common stock, bonds and cash. These agents have allowed many pension funds to successfully invest in the private equity asset class.
At PERA we used placement agents to assist us in our investment process for that asset class. Prior to making an investment we would share with the placement agent how we operate and what we expected of them. Some of the more pertinent points were:
* the placement agent needed to understand our investment policy and procedures
* they were to screen all investment offerings prior to showing them to us
* they were required to do in depth due diligence on the general partners, such as
- on site meetings with gp`s
- understand gp`s investment process
- meet with gp staff
- performance history of gp`s prior funds
- current or any past problems with gp, staff turnover or regulatory authorities
- any previous investment failures gp`s have experienced
PERA has a 16 member board of trustees and an investment committee that meets regularly to discuss portfolio issues. This type of management oversight has worked very well in the past, and I feel, will continue to do so in the future.
Based on my experience in this area I am recommending a more thorough analysis by your staff in determining the best levels of regulation for this important investment function as opposed to eliminating it.
Norman G. Benedict